Who Transfers Credit Risk? Determinants of the Use of Credit Derivatives by Large US Banks
The European Journal of Finance, Vol. 13(5), pages 483-500: DOI:10.1080/13518470601137840
Posted: 4 Oct 2013
Date Written: July 30, 2007
Credit derivatives enable banks to transfer selected credit risks to third parties. An empirical model is developed for the motivation for bank participation in credit derivative markets and, conditional on participation, the factors that determine the volume of business transacted. Participation appears to be closely related to bank size, but there is only limited evidence that entry barriers related to franchise value or past experience in dealing in derivatives are important. There is evidence that banks use credit derivatives as part of their overall risk management strategy. However, the use of credit derivatives does not appear to be influenced by the extent of managerial share ownership.
Keywords: Banking, financial innovation, credit derivatives
JEL Classification: G24, G21
Suggested Citation: Suggested Citation