CDS and credit: The effect of the bangs on credit insurance, lending and hedging

Yalin Gündüz, Steven Ongena, Günseli Tümer-Alkan and Yuejuan Yu

Journal of Empirical Finance, 2025, vol. 81, issue C

Abstract: We assess the differential impacts of “Big Bang” and “Small Bang” contracts and convention changes on market participants across CDS markets and couple comprehensive bank-firm-level CDS trading data from the DTCC to the German credit register containing bi-lateral bank-firm credit exposures. We find that after the Bangs, the cost of buying CDS contracts becomes lower for non-dealer banks and that, because of this decrease in insurance costs, these banks extend relatively more credit to CDS-traded and affected firms compared to dealers, and hedge more effectively. Hence, standardization lowers the cost of credit insurance and leads to a relative increase in credit extensions by non-dealer banks.

Keywords: Credit default swaps; Credit exposure; Hedging; Bank lending; Depository Trust and Clearing Corporation (DTCC) (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: CDS and Credit: The Effect of the Bangs on Credit Insurance, Lending and Hedging (2024)
Working Paper: CDS and Credit: The Effect of the Bangs on Credit Insurance, Lending and Hedging (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:81:y:2025:i:c:s0927539825000052

DOI: 10.1016/j.jempfin.2025.101583

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