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The impact of central clearing on banks’ lending discipline

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  • Arnold, M.

Abstract

In this paper, I investigate the impact of central clearing in credit risk transfer markets on a loan-originating bank's lending behavior. Under the current market regulation, central clearing undermines banks’ lending discipline. The regulatory design of the credit risk transfer market in terms of capital requirements, disclosure standards, risk retention, and access to uncleared credit risk transfer can mitigate this problem. I also show that the lending discipline channel is an essential element of the impact of central clearing on banks’ loan default loss exposure, which is a first-order consideration for systemic risk analysis.

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  • Arnold, M., 2017. "The impact of central clearing on banks’ lending discipline," Journal of Financial Markets, Elsevier, vol. 36(C), pages 91-114.
    • Handle: RePEc:eee:finmar:v:36:y:2017:i:c:p:91-114
    DOI: 10.1016/j.finmar.2017.06.001
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    1. Demange, Gabrielle & Piquard, Thibaut, 2023. "On the choice of central counterparties in the EU," Journal of Financial Markets, Elsevier, vol. 64(C).
    2. Jin-Wook Chang, 2019. "Collateralized Debt Networks with Lender Default," Finance and Economics Discussion Series 2019-083, Board of Governors of the Federal Reserve System (U.S.).
    3. Tomasz R. Bielecki & Igor Cialenco & Shibi Feng, 2018. "A Dynamic Model of Central Counterparty Risk," Papers 1803.02012, arXiv.org.
    4. Tomasz R. Bielecki & Igor Cialenco & Shibi Feng, 2018. "A Dynamic Model Of Central Counterparty Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(08), pages 1-34, December.

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    More about this item

    Keywords

    Credit Risk Transfer; Central Clearing; Lending Discipline;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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