The Introduction of Market-Based Pricing in Corporate Lending
10 Pages Posted: 1 Dec 2017
Date Written: March 27, 2014
We describe a recent innovation in the corporate lending business whereby banks tie the interest rate during the life of the loan to the borrowers’ credit default swap spreads or to a CDS index. We also discuss the potential impact this innovation may have on bank lending and more generally on financial intermediation and identify some potential adverse effects it may have for the stability of the financial system.
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