Research Discussion Papers, Bank of Finland
No 4/2007:
Bank behaviour with access to credit risk transfer markets
Benedikt Goderis, Ian Marsh ()
, Judit Vall Castello and Wolf Wagner
Abstract: One of the most important recent innovations in financial
markets has been the development of credit derivative products that allow
banks to more actively manage their credit portfolios than ever before. We
analyse the effect that access to these markets has had on the lending
behaviour of a sample of banks, using a sample of banks that have not
accessed these markets as a control group. We find that banks that adopt
advanced credit risk management techniques (proxied by the issuance of at
least one collateralized loan obligation) experience a permanent increase
in their target loan levels of around 50%. Partial adjustment to this
target, however, means that the impact on actual loan levels is spread over
several years. Our findings confirm the general efficiency-enhancing
implications of new risk management techniques in a world with frictions
suggested in the theoretical literature.
Keywords: credit derivatives; bank loans; moral hazard; (follow links to similar papers)
JEL-Codes: G20; G21; G28; (follow links to similar papers)
32 pages, February 28, 2007
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