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

See all articles by Dawood Ashraf

Dawood Ashraf

Islamic Development Bank - Islamic Research and Training Institute

Yener Altunbas

University of Wales, Bangor

John A. Goddard

University of Wales, Swansea

Date Written: July 30, 2007

Abstract

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

Ashraf, Dawood and Altunbas, Yener and Goddard, John A., Who Transfers Credit Risk? Determinants of the Use of Credit Derivatives by Large US Banks (July 30, 2007). The European Journal of Finance, Vol. 13(5), pages 483-500: DOI:10.1080/13518470601137840. Available at SSRN: https://ssrn.com/abstract=2335973

Dawood Ashraf (Contact Author)

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

Yener Altunbas

University of Wales, Bangor ( email )

Bangor, Gwynedd, Wales LL57 2DG
United Kingdom

John A. Goddard

University of Wales, Swansea ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

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