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Bank behaviour with access to credit risk transfer markets

Author

Listed:
  • Goderis, Benedikt
  • Marsh, Ian W.
  • Castello, Judit Vall
  • Wagner, Wolf

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.

Suggested Citation

  • Goderis, Benedikt & Marsh, Ian W. & Castello, Judit Vall & Wagner, Wolf, 2007. "Bank behaviour with access to credit risk transfer markets," Bank of Finland Research Discussion Papers 4/2007, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2007_004
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    References listed on IDEAS

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    More about this item

    Keywords

    credit derivatives; bank loans; moral hazard;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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