Credit Risk Transfer and Financial Sector Performance

34 Pages Posted: 18 Mar 2004  

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); Centre for Economic Policy Research (CEPR)

Ian W. Marsh

City University London - Sir John Cass Business School

Multiple version iconThere are 2 versions of this paper

Date Written: February 2004

Abstract

In this paper, we study the impact of credit risk transfer (CRT) on the stability and the efficiency of a financial system in a model with endogenous intermediation and production. Our analysis suggests that with respect to CRT, the individual incentives of the agents in the economy are generally aligned with social incentives. Hence, CRT does not pose a systematic challenge to the functioning of the financial system and is generally welfare enhancing. We identify issues that should be addressed by the regulatory authorities in order to minimize the potential costs of CRT. These include: ensuring regulatory standards that reflect differences in the social cost of instability in the banking and insurance sector; and promoting CRT instruments that are not detrimental to the monitoring incentives of banks.

Keywords: Credit risk transfer, efficiency, intermediation, stability

JEL Classification: G21, G22, G28

Suggested Citation

Wagner, Wolf and Marsh, Ian W., Credit Risk Transfer and Financial Sector Performance (February 2004). CEPR Discussion Paper No. 4265; Cass Business School Research Paper. Available at SSRN: https://ssrn.com/abstract=519101 or http://dx.doi.org/10.2139/ssrn.519101

Wolf Wagner

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Ian William Marsh (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 5121 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/i.marsh

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