Abstract

https://ssrn.com/abstract=2772963
 


 



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


Iftekhar Hasan


Gabelli School of Business, Fordham University; Bank of Finland

Deming Wu


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

2016

Bank of Finland Research Discussion Paper No. 9/2016
Gabelli School of Business, Fordham University Research Paper No. 2772963

Abstract:     
Do banks use credit default swap hedging to substitute for loan sales? By tracking banks’ lending exposures and CDS positions on individual firms, we find that banks use CDS hedging to complement rather than to substitute for loan sales. Consequently, bank loan sales are higher for firms that are actively traded in the CDS market. In addition, we find evidence that suggests that banks sell CDS protection as credit enhancements to facilitate loan sales. This study employs identification strategies similar to the “twin study” design to separate the effects of borrower-side and lender-side factors, and to minimize the omitted-variables bias.

Number of Pages in PDF File: 41

Keywords: G14, G21, G23, G28, G32, loan sales, hedging, credit enhancement, regulatory capital relief, banking


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Date posted: May 2, 2016  

Suggested Citation

Hasan, Iftekhar and Wu, Deming, Credit Default Swaps and Bank Loan Sales: Evidence from Bank Syndicated Lending (2016). Bank of Finland Research Discussion Paper No. 9/2016; Gabelli School of Business, Fordham University Research Paper No. 2772963. Available at SSRN: https://ssrn.com/abstract=2772963

Contact Information

Iftekhar Hasan (Contact Author)
Gabelli School of Business, Fordham University ( email )
Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )
P.O. Box 160
Helsinki 00101
Finland

Deming Wu
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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