Credit Default Swaps and Bank Loan Sales: Evidence from Bank Syndicated Lending

57 Pages Posted: 13 Jun 2015 Last revised: 22 Dec 2017

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Deming Wu

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: December 21, 2017

Abstract

We empirically examine three channels in the relation between banks’ CDS trading and loan sales. The substitute channel predicts a negative relation between CDS hedging and loan sales, and the complementary channel predicts a positive relation. The credit-enhancement channel predicts a positive relation between banks’ CDS selling and loan sales. Using syndicated loan share ownership data of U.S. banks over the period 2001–2013, we find that the complementary channel dominates the substitute channel, and the credit-enhancement channel plays an important role in bank loan sales.

Keywords: CDS, Loan sales, Hedging, Substitute channel, Complementary channel, Credit-enhancement channel

JEL Classification: G14, G21, G23, G28, G32

Suggested Citation

Hasan, Iftekhar and Wu, Deming, Credit Default Swaps and Bank Loan Sales: Evidence from Bank Syndicated Lending (December 21, 2017). Available at SSRN: https://ssrn.com/abstract=2617493 or http://dx.doi.org/10.2139/ssrn.2617493

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

Deming Wu (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

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