Credit Risk Transfer and Financial Sector Performance

Ian Marsh () and Wolf Wagner ()

No 4265, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this Paper we study the impact of credit risk transfer (CRT) on the stability and the efficiency of a financial system in a model with endogenous intermediation and production. Our analysis suggests that with respect to CRT, the individual incentives of the agents in the economy are generally aligned with social incentives. Hence, CRT does not pose a systematic challenge to the functioning of the financial system and is generally welfare enhancing. We identify issues that should be addressed by the regulatory authorities in order to minimize the potential costs of CRT. These include: ensuring regulatory standards that reflect differences in the social cost of instability in the banking and insurance sector; and promoting CRT instruments that are not detrimental to the monitoring incentives of banks.

Keywords: Credit risk transfer; Efficiency; Stability; Intermediation (search for similar items in EconPapers)
JEL-codes: G21 G22 G28 (search for similar items in EconPapers)
Date: 2004-02
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-rmg
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Citations: View citations in EconPapers (8)

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