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Credit risk transfer in U.S. commercial banks: What changed during the 2007–2009 crisis?

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  • Bedendo, Mascia
  • Bruno, Brunella

Abstract

Following the debate on the role of credit risk transfer (CRT) in exacerbating the 2007–2009 crisis, this paper investigates the usage and effects of loan sales, securitization, and credit derivatives in U.S. commercial banks over the last decade, with special emphasis on the financial crisis. We find that in times of severe funding constraints, the need to raise financial resources becomes the principal incentive behind CRT. We document some beneficial effects of CRT on the economy, since the funds released through CRT are subsequently invested by banks to sustain credit supply, also in recession. However, we report higher overall riskiness in banks that engage intensively in loans sales and securitization, which translates into higher default rates during the crisis. Interestingly, the benefits and drawbacks of CRT are much stronger for loan sales and securitization than for credit derivatives.

Suggested Citation

  • Bedendo, Mascia & Bruno, Brunella, 2012. "Credit risk transfer in U.S. commercial banks: What changed during the 2007–2009 crisis?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3260-3273.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:12:p:3260-3273
    DOI: 10.1016/j.jbankfin.2012.07.011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Adachi-Sato, Meg & Vithessonthi, Chaiporn, 2017. "Bank systemic risk and corporate investment: Evidence from the US," International Review of Financial Analysis, Elsevier, vol. 50(C), pages 151-163.
    2. Giampaolo Gabbi & Alesia Kalbaska & Alessandro Vercelli, 2014. "Factors generating and transmitting the financial crisis: The role of incentives: securitization and contagion," Working papers wpaper56, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Bank Systemic Risk and Corporate Investment," PIER Discussion Papers 17., Puey Ungphakorn Institute for Economic Research, revised Jan 2016.
    4. Chang, Chuen-Ping & Chen, Shi, 2016. "Government capital injection, credit risk transfer, and bank performance during a financial crisis," Economic Modelling, Elsevier, vol. 53(C), pages 477-486.
    5. repec:eee:riibaf:v:42:y:2017:i:c:p:645-657 is not listed on IDEAS
    6. Colonnello, Stefano, 2017. "Internal governance and creditor governance: Evidence from credit default swaps," IWH Discussion Papers 6/2017, Halle Institute for Economic Research (IWH).
    7. Dragos Ilie & Laura Ungureanu, 2014. "Survey on the Viewpoints of Credit Beneficiaries Qua Consumers in Order to increase Banking Accountability," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 16(35), pages 138-138, February.
    8. Christina E. Bannier & Thomas Heidorn & Heinz-Dieter Vogel, 2014. "Characteristics and development of corporate and sovereign CDS," Journal of Risk Finance, Emerald Group Publishing, vol. 15(5), pages 482-509, November.
    9. repec:eco:journ1:2017-04-80 is not listed on IDEAS
    10. repec:wsi:serxxx:v:62:y:2017:i:04:n:s0217590817400288 is not listed on IDEAS
    11. Giampaolo Gabbi & Elisa Ticci, 2014. "Implications of financialisation for sustainability," Working papers wpaper47, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    12. Goenner, Cullen F, 2016. "The policy impact of new rules for loan participation on credit union returns," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 198-210.
    13. Chen, Zhizhen & Liu, Frank Hong & Opong, Kwaku & Zhou, Mingming, 2017. "Short-term safety or long-term failure? Empirical evidence of the impact of securitization on bank risk," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 48-74.

    More about this item

    Keywords

    Credit risk transfer; Financial crisis; Bank lending; Bank risk;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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