Credit Risk Transfer and Bank Competition

Hendrik Hakenes () and Isabel Schnabel ()
Additional contact information
Isabel Schnabel: Department of Law and Economics, Johannes Gutenberg University Mainz

No 2009_33, Working Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: We present a banking model with imperfect competition in which borrowers’ access to credit is improved when banks are able to transfer credit risks. However, the market for credit risk transfer (CRT) works smoothly only if the quality of loans is public information. If the quality of loans is private information, banks have an incentive to grant unprofitable loans in order to transfer them to other parties, leading to an increase in aggregate risk. Nevertheless, the introduction of CRT generally increases welfare in our setup. However, under private information, higher competition induces an expansion of loans to unprofitable firms, which in the limit offsets the welfare gains from CRT completely.

Keywords: access to credit; bank competition; credit derivatives; Credit risk transfer; public and private information (search for similar items in EconPapers)
JEL-codes: G13 G21 L11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-cta and nep-mic
Date: 2009-10

Downloads: (external link)
http://www.coll.mpg.de/pdf_dat/2009_33online.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:mpg:wpaper:2009_33

Access Statistics for this paper

More papers in Working Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods
Contact information at EDIRC.
Series data maintained by Brigitte Martin ().