Bank Behaviour with Access to Credit Risk Transfer Markets
32 Pages Posted: 31 Aug 2007 Last revised: 30 Oct 2010
Date Written: 2007
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.
Keywords: credit derivatives, bank loans, moral hazard
JEL Classification: G20, G21, G28
Suggested Citation: Suggested Citation