Abstract

http://ssrn.com/abstract=2316097
 
 

References (40)



 


 



The Transformation of Banking: Tying Loan Interest Rates to Borrowers' CDS Spreads


Ivan Ivanov


Federal Reserve Board

João A. C. Santos


Federal Reserve Bank of New York

Thu Vo


University of Rochester - Simon Business School

July 11, 2014

Simon School Working Paper No. FR 13-25

Abstract:     
We investigate how the introduction of market-based pricing, the practice of tying loan interest rates to credit default swaps, has affected borrowing costs. We find that CDS-based loans are associated with lower interest rates, both at origination and during the life of the loan. Our results also indicate that banks simplify the covenant structure of market-based pricing loans, suggesting that the decline in the cost of bank debt is explained, at least in part, by a reduction in monitoring costs. Market-based pricing, therefore, besides reducing the cost of bank debt, may also have adverse consequences resulting from the decline in bank monitoring.

Number of Pages in PDF File: 55

Keywords: Market-based pricing, loan spreads, loan covenants, CDS spreads

JEL Classification: G1, G21, G30

Accepted Paper Series


Download This Paper

Date posted: August 27, 2013 ; Last revised: July 12, 2014

Suggested Citation

Ivanov, Ivan and Santos, João A. C. and Vo, Thu, The Transformation of Banking: Tying Loan Interest Rates to Borrowers' CDS Spreads (July 11, 2014). Simon School Working Paper No. FR 13-25. Available at SSRN: http://ssrn.com/abstract=2316097 or http://dx.doi.org/10.2139/ssrn.2316097

Contact Information

Ivan Ivanov (Contact Author)
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
João A. C. Santos
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)
HOME PAGE: HTTP://WWW.NEWYORKFED.ORG/RMAGHOME/ECONOMIST/SANTOS/CONTACT.HTML
Thu Vo
University of Rochester - Simon Business School ( email )
Rochester, NY 14627
United States
Feedback to SSRN


Paper statistics
Abstract Views: 949
Downloads: 239
Download Rank: 72,613
References:  40

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo2 in 0.562 seconds