Innovations in credit risk transfer: implications for financial stability
Abstract
Banks and other lenders often transfer credit risk to liberate capital for further loan intermediation. This paper aims to explore the design, prevalence and effectiveness of credit risk transfer (CRT). The focus is on the costs and benefits for the efficiency and stability of the financial system. After an overview of recent credit risk transfer activity, the following points are discussed: motivations for CRT by banks; risk retention; theories of CDO design; specialty finance companies. As an illustration of CLO design, an example is provided showing how the credit quality of the borrowers can deteriorate if efforts to control their default risks are costly for issuers. An appendix is provided on CDS index tranches.Download Info
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Paper provided by Bank for International Settlements in its series BIS Working Papers with number 255.Length: 40 pages
Date of creation: Jul 2008
Date of revision:
Handle: RePEc:bis:biswps:255
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Related research
Keywords: credit derivatives; credit risk transfer; financial innovations; financial stability;This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-BAN-2008-07-30 (Banking)
- NEP-RMG-2008-07-30 (Risk Management)
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Alper Kara & David Marqués-Ibáñez & Steven Ongena, 2011.
"Securitization and lending standards - evidence from the wholesale loan market,"
Working Paper Series
1362, European Central Bank.
- Kara, A. & Marques-Ibanez, D. & Ongena, S., 2011. "Securitization and Lending Standards: Evidence from the Wholesale Loan Market," Discussion Paper 2011-081, Tilburg University, Center for Economic Research.
- Markus K. Brunnermeier, 2008. "Deciphering the Liquidity and Credit Crunch 2007-08," NBER Working Papers 14612, National Bureau of Economic Research, Inc.
- Patrick Honohan, 2008. "Bank Failures: The Limitations of Risk Modelling," The Institute for International Integration Studies Discussion Paper Series iiisdp263, IIIS.
- Fender, Ingo & Mitchell, Janet, 2009.
"Incentives and Tranche Retention in Securitisation: A Screening Model,"
CEPR Discussion Papers
7483, C.E.P.R. Discussion Papers.
- Ingo Fender & Janet Mitchell, 2009. "Incentives and tranche retention in securitisation : a screening model," Working Paper Research 177, National Bank of Belgium.
- Ingo Fender & Janet Mitchell, 2009. "Incentives and tranche retention in securitisation: a screening model," BIS Working Papers 289, Bank for International Settlements.
- Bengtsson, E., 2013. "Fund Management and Systemic Risk - Lessons from the Global Financial Crisis," CITYPERC Working Paper Series 2013-06, Department of International Politics, City University London.
- Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
- Affinito, Massimiliano & Tagliaferri, Edoardo, 2010. "Why do (or did?) banks securitize their loans? Evidence from Italy," Journal of Financial Stability, Elsevier, vol. 6(4), pages 189-202, December.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Patrick Honohan, 2008.
"Risk Management and the Costs of the Banking Crisis,"
The Institute for International Integration Studies Discussion Paper Series
iiisdp262, IIIS.
- Patrick Honohan, 2008. "Risk Management and the Costs of the Banking Crisis," National Institute Economic Review, National Institute of Economic and Social Research, vol. 206(1), pages 15-24, October.
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