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The Transformation of Banking: Tying Loan Interest Rates to Borrowers' Credit Default Swap Spreads

Joao Santos

No 20140210, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Banks? practice of tying loan interest rates to borrowers? credit default swap (CDS) spreads constitutes one of the most recent financial innovations. In this post, I discuss evidence from a research project, undertaken with Ivan Ivanov and Thu Vo, showing that this practice has lowered the cost of bank credit. I also discuss some potential drawbacks of this innovation.

Keywords: CDS spreads; Interest Rates; Banking (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2014-02-10
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Citations: View citations in EconPapers (1)

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