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Credit Risk Transfer and Financial Sector Performance

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  • Marsh, Ian W
  • Wagner, Wolf

Abstract

In this Paper we study the impact of credit risk transfer (CRT) on the stability and the efficiency of a financial system in a model with endogenous intermediation and production. Our analysis suggests that with respect to CRT, the individual incentives of the agents in the economy are generally aligned with social incentives. Hence, CRT does not pose a systematic challenge to the functioning of the financial system and is generally welfare enhancing. We identify issues that should be addressed by the regulatory authorities in order to minimize the potential costs of CRT. These include: ensuring regulatory standards that reflect differences in the social cost of instability in the banking and insurance sector; and promoting CRT instruments that are not detrimental to the monitoring incentives of banks.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4265.

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Date of creation: Feb 2004
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Handle: RePEc:cpr:ceprdp:4265

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Related research

Keywords: credit risk transfer; efficiency; intermediation; stability;

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Cited by:
  1. Chiesa, Gabriella, 2008. "Optimal credit risk transfer, monitored finance, and banks," Journal of Financial Intermediation, Elsevier, vol. 17(4), pages 464-477, October.
  2. Wagner, Wolf & Marsh, Ian W., 2006. "Credit risk transfer and financial sector stability," Journal of Financial Stability, Elsevier, vol. 2(2), pages 173-193, June.
  3. Franklin Allen & Elena Carletti, 2005. "Credit Risk Transfer and Contagion," CFS Working Paper Series 2005/25, Center for Financial Studies.
  4. Goderis, B.V.G. & Marsh, I. & Vall Castello, J. & Wagner, W.B., 2006. "Bank Behavior with Access to Credit Risk Transfer Markets," Discussion Paper 2006-100, Tilburg University, Center for Economic Research.
  5. Carbó Valverde, Santiago & Degryse, Hans & Rodriguez-Fernandez, Francisco, 2012. "Lending relationships and credit rationing: the impact of securitization," CEPR Discussion Papers 9138, C.E.P.R. Discussion Papers.
  6. Li L. Ong & Jorge A. Chan-Lau, 2006. "The Credit Risk Transfer Market and Stability Implications for U.K. Financial Institutions," IMF Working Papers 06/139, International Monetary Fund.
  7. James R. Thompson, 2007. "Counterparty Risk in Insurance Contracts: Should the Insured Worry about the Insurer?," Working Papers 1136, Queen's University, Department of Economics.
  8. R. Vander Vennet & O. De Jonghe & L. Baele, 2004. "Bank risks and the business cycle," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 04/264, Ghent University, Faculty of Economics and Business Administration.

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