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Syndicated loans and CDS positioning

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  • Iñaki Aldasoro
  • Andreas Barth

Abstract

This paper analyzes banks' usage of CDS. Combining bank-firm syndicated loan data with a unique EU-wide dataset on bilateral CDS positions, we find that stronger banks in terms of capital, funding and profitability tend to hedge more. We find no evidence of banks using the CDS market for capital relief. Banks are more likely to hedge exposures to relatively riskier borrowers and less likely to sell CDS protection on domestic firms. Lead arrangers tend to buy more protection, potentially exacerbating asymmetric information problems. Dealer banks seem insensitive to firm risk, and hedge more than non-dealers when they are more profitable. These results allow for a better understanding of banks' credit risk management.

Suggested Citation

  • Iñaki Aldasoro & Andreas Barth, 2017. "Syndicated loans and CDS positioning," BIS Working Papers 679, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:679
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    1. Fiedor, Paweł & Killeen, Neill, 2019. "Securisation special purpose entities, bank sponsors and derivatives," ESRB Working Paper Series 99, European Systemic Risk Board.

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    More about this item

    Keywords

    syndicated loans; CDS; speculation; capital regulation; EMIR; cross-border lending; asymmetric information;
    All these keywords.

    JEL classification:

    • 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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