The Impact of Credit Default Swap Trading on Loan Syndication

Daniel Streitz

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: We analyze the impact of CDS trading on bank syndication activity. Theoretically,the effect of CDS trading is ambiguous: on the one hand, CDS can improve risksharing and hence be a more flexible risk management tool than loan syndication; on the other hand, CDS trading can reduce bank monitoring incentives. We document that banks are less likely to syndicate loans and retain a larger loan fraction once CDS are actively traded on the borrower’s debt. We then discern the risk management and the moral hazard channel. We find no evidence that the reduced likelihood to syndicate loans is a result of increased moral hazard problems.

Keywords: Loan Sales; Credit Default Swaps; Syndicate Structure; Syndicated Loans (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
Date: 2015-02-02
New Economics Papers: this item is included in nep-ban and nep-cfn
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The Impact of Credit Default Swap Trading on Loan Syndication (2016)
Working Paper: The impact of credit default swap trading on loan syndication (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:490

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