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Credit Risk Transfer and Financial Sector Performance


Wolf Wagner


Tilburg University, Department of Economics and the European Banking Center

Ian W. Marsh


City University London - Sir John Cass Business School

February 2004

CEPR Discussion Paper No. 4265
Cass Business School Research Paper

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.

Number of Pages in PDF File: 34

Keywords: Credit risk transfer, efficiency, intermediation, stability

JEL Classification: G21, G22, G28

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Date posted: March 18, 2004  

Suggested Citation

Wagner, Wolf and Marsh, Ian W., Credit Risk Transfer and Financial Sector Performance (February 2004). CEPR Discussion Paper No. 4265; Cass Business School Research Paper. Available at SSRN: http://ssrn.com/abstract=519101 or http://dx.doi.org/10.2139/ssrn.519101

Contact Information

Wolf Wagner
Tilburg University, Department of Economics and the European Banking Center ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Ian William Marsh (Contact Author)
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 5121 (Phone)
+44 20 7040 8881 (Fax)
HOME PAGE: http://www.cass.city.ac.uk/faculty/i.marsh
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