Bank private information in CDS markets

Andrada Bilan, Steven Ongena and Cosimo Pancaro

No 2818, Working Paper Series from European Central Bank

Abstract: Can banks trade credit default swaps (CDSs) referenced on their current corporate clients at competitive prices, or are banks penalized for potentially holding private information? To answer this question we merge CDS trades reported under the European Market Infrastructure Regulation (EMIR) with syndicated loans from DealScan, and compare the prices on similar CDSs that the same dealer offers to banks and to other investors. We find that banks lending to a corporation purchase CDSs on this corporation at lower prices, and that, after trading with banks, dealers can earn higher margins on these CDSs when trading with other investors. Our findings suggest that banks hold valuable private information which is shared in their trades with dealers. Dealers then disseminate this information to financial markets. JEL Classification: G14, G21, G23

Keywords: banks; credit derivatives; EMIR; price discovery; syndicated loans (search for similar items in EconPapers)
Date: 2023-05
New Economics Papers: this item is included in nep-ban, nep-eec, nep-fmk and nep-mst
Note: 1934813
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20232818

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