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Credit derivatives and bank credit supply

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Beverly Hirtle

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Abstract

Credit derivatives are the latest in a series of innovations that have had a significant impact on credit markets. Using a micro data set of individual corporate loans, this paper explores whether use of credit derivatives is associated with an increase in bank credit supply. The author finds evidence that greater use of credit derivatives is associated with greater supply of bank credit for large term loans--newly negotiated loan extensions to large corporate borrowers--though not for (previously negotiated) commitment lending. This finding suggests that the benefits of the growth of credit derivatives may be narrow, accruing mainly to large firms that are likely to be “named credits” in these transactions. Further, the impact is primarily on the terms of lending--longer loan maturity and lower spreads--rather than on loan volume. Finally, use of credit derivatives appears to be complementary to other forms of hedging by banks.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 276.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:276

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Keywords: Credit derivatives Credit Bank loans Commercial loans

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  2. Hubert Kempf & stéphane Rossignol, 2005. "Is inequality harmful for the environment in a growing economy ?," Cahiers de la Maison des Sciences Economiques v06045, Université Panthéon-Sorbonne (Paris 1), revised May 2006. [Downloadable!]
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  3. Annegrete Bruvoll, Taran Fæhn and Birger Strøm, 2003. "Quantifying Central Hypotheses on Environmental Kuznets Curves for a Rich Economy: A Computable General Equilibrium Study," Discussion Papers 341, Research Department of Statistics Norway. [Downloadable!]
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  4. Annegrete Bruvoll and Taran Fæhn, 2004. "Transboundary environmental policy effects: Markets and emission leakages," Discussion Papers 384, Research Department of Statistics Norway. [Downloadable!]
  5. Hannes Egli, 2005. "A new approach to pollution modelling in models of the environmental Kuznets curve," Economics working paper series 05/39, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  6. Soretz, Susanne, 2002. "Stochastic Pollution and Environmental Care in an Endogenous Growth Model," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover dp-259, Universität Hannover, Wirtschaftswissenschaftliche Fakultät. [Downloadable!]
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  7. Marsiliani, Laura & Renström, Thomas I, 2003. "Inequality, Environmental Protection and Growth," CEPR Discussion Papers 3754, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  8. Eriksson, Clas & Persson, Joakim, 2002. "Economic Growth, Inequality, Democratization, and the Environment," Working Paper Series 178, Trade Union Institute for Economic Research. [Downloadable!]
  9. Yener Altunbas & Leonardo Gambacorta & David Marqués, 2007. "Securitisation and the bank lending channel," Working Paper Series 838, European Central Bank. [Downloadable!]
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  10. J. Aznar-Márquez & J. R. Ruiz-Tamarit, . "Non-Catastrophic Endogenous Growth and the Environmental Kuznets Curve," Working Papers 2004-15, FEDEA. [Downloadable!]
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  12. Clas Eriksson & Joakim Persson, 2003. "Economic Growth, Inequality, Democratization, and the Environment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 25(1), pages 1-16, May. [Downloadable!] (restricted)
  13. J., AZNAR-MARQUEZ & Jose-Ramon, RUIZ-TAMARIT, 2005. "Demographic Transition Environmental Concern and the Kuznets Curve," Université catholique de Louvain, Département des Sciences Economiques Working Paper 2005001, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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