Credit default swaps and regulatory capital relief: Evidence from European banks

John Thornton and Caterina di Tommaso

Finance Research Letters, 2018, vol. 26, issue C, 255-260

Abstract: In a sample of European banks, we find that credit default swaps (CDS) are used for regulatory arbitrage to lower capital requirements and facilitate greater risk taking. Moreover, CDS-using banks generate higher returns on capital from the lower risk weighted assets they hold relative to banks that do not use CDS.

Keywords: Credit default swaps; Regulatory arbitrage; European banks (search for similar items in EconPapers)
JEL-codes: G01 G18 G21 G22 G28 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:26:y:2018:i:c:p:255-260

DOI: 10.1016/j.frl.2018.02.008

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