Bank Behavior with Access to Credit Risk Transfer Markets

B.V.G. Goderis, I. Marsh, J. Vall Castello, W.B. Wagner

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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 analyze the effect that access to these markets has had on the lending behavior 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.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages29
Volume2006-100
Publication statusPublished - 2006

Publication series

NameCentER Discussion Paper
Volume2006-100

Keywords

  • credit risk transfer
  • risk management
  • bank lending

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    Goderis, B. V. G., Marsh, I., Vall Castello, J., & Wagner, W. B. (2006). Bank Behavior with Access to Credit Risk Transfer Markets. (CentER Discussion Paper; Vol. 2006-100). Macroeconomics.