Bank behavior with access to credit risk transfer markets

Benedikt Goderis (), Ian W. Marsh, Judith Vall Castello and Wolf Wagner ()

No 100, Discussion Paper from Tilburg University, Center for Economic Research

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.

JEL-codes: G21 G31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-rmg
Date: Written 2006
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Related works:
Working Paper: Bank behaviour with access to credit risk transfer markets (2007)
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