Banking Risk and Credit Derivatives

28 Pages Posted: 6 Jun 2012

See all articles by Luis Otero González

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Luis Ignacio Rodriguez Gil

Universidad de Santiago de Compostela - Faculty of Economic Science and Business Studies

Pablo Duran Santomil

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies

Sara Cantorna Agra

Universidade de Santiago de Compostela

Date Written: June 5, 2012

Abstract

Recently, global credit derivative markets have expanded very fast. Despite the fast growth, little is known whether their use is beneficial or increases their risk exposure. The few empirical papers that exist in this area relate primarily to the American market and there are no works referred to the European banking sector. Our results show that European banks that use credit derivatives for hedging experience an improvement in their level of financial stability, while those who opt for a speculative position have test negative. This conclusion is in line with Shao and Yeager (2007). On the other hand, contrary to established by these authors, is not observed entities exploit coverage to undertake more risky strategies, both in terms of leverage of portfolio that ultimately increase financial instability in terms of z-score. Accordingly and based on these data, it could not be attributed to credit derivatives in Europe the direct cause of the current crisis.

Keywords: credit derivatives, credit risk, risk, Z-score, European banks

JEL Classification: G14, G15, G21

Suggested Citation

Otero González, Luis and Rodriguez Gil, Luis Ignacio and Duran Santomil, Pablo and Cantorna Agra, Sara, Banking Risk and Credit Derivatives (June 5, 2012). Available at SSRN: https://ssrn.com/abstract=2077734 or http://dx.doi.org/10.2139/ssrn.2077734

Luis Otero González

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Juan XXIII s/n
Santiago, A Coruña 15704
Spain

Luis Ignacio Rodriguez Gil (Contact Author)

Universidad de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Avda. Burgo das Nacions s/n
Santiago de Compostela, A Coruña 15704
Spain

Pablo Duran Santomil

Universidade de Santiago de Compostela - Faculty of Economic Science and Business Studies ( email )

Faculty of Economic Science and Business Studies
Av/Burgo das Nacións s/n
Santiago, A Coruña 15704
Spain

Sara Cantorna Agra

Universidade de Santiago de Compostela ( email )

R/ de San Francisco, s/n
Santiago de Compostela, 15782
Spain

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