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Article: Credit Default Swaps and Bank Regulatory Capital

TitleCredit Default Swaps and Bank Regulatory Capital
Authors
KeywordsG21 - Banks
Depository Institutions
Micro Finance Institutions
Mortgages
G28 - Government Policy and Regulation
Issue Date2020
PublisherOxford University Press. The Journal's web site is located at http://rof.oxfordjournals.org/
Citation
Review of Finance, 2020, Epub 2020-08-12 How to Cite?
AbstractWhile credit default swaps (CDS) can be used to hedge credit risk exposures or to speculate, we examine another use of them: banks buy CDS referencing their borrowers to obtain regulatory capital relief. Such capital relief activities have unintended consequences, as banks extend riskier loans when they buy CDS to boost capital ratios. While capital-induced CDS-user banks achieve higher profitability during normal times, they perform worse and request more government support in crisis periods than other banks that use CDS for trading or speculation. Our findings suggest that banks’ CDS trading for capital relief purposes may make these banks riskier.
Persistent Identifierhttp://hdl.handle.net/10722/286060
ISSN
2023 Impact Factor: 5.6
2023 SCImago Journal Rankings: 7.769
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorShan, C-
dc.contributor.authorTang, DY-
dc.contributor.authorYan, H-
dc.contributor.authorZhou, XA-
dc.date.accessioned2020-08-31T06:58:31Z-
dc.date.available2020-08-31T06:58:31Z-
dc.date.issued2020-
dc.identifier.citationReview of Finance, 2020, Epub 2020-08-12-
dc.identifier.issn1572-3097-
dc.identifier.urihttp://hdl.handle.net/10722/286060-
dc.description.abstractWhile credit default swaps (CDS) can be used to hedge credit risk exposures or to speculate, we examine another use of them: banks buy CDS referencing their borrowers to obtain regulatory capital relief. Such capital relief activities have unintended consequences, as banks extend riskier loans when they buy CDS to boost capital ratios. While capital-induced CDS-user banks achieve higher profitability during normal times, they perform worse and request more government support in crisis periods than other banks that use CDS for trading or speculation. Our findings suggest that banks’ CDS trading for capital relief purposes may make these banks riskier.-
dc.languageeng-
dc.publisherOxford University Press. The Journal's web site is located at http://rof.oxfordjournals.org/-
dc.relation.ispartofReview of Finance-
dc.rightsPre-print: Journal Title] ©: [year] [owner as specified on the article] Published by Oxford University Press [on behalf of xxxxxx]. All rights reserved. Pre-print (Once an article is published, preprint notice should be amended to): This is an electronic version of an article published in [include the complete citation information for the final version of the Article as published in the print edition of the Journal.] Post-print: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in [insert journal title] following peer review. The definitive publisher-authenticated version [insert complete citation information here] is available online at: xxxxxxx [insert URL that the author will receive upon publication here].-
dc.subjectG21 - Banks-
dc.subjectDepository Institutions-
dc.subjectMicro Finance Institutions-
dc.subjectMortgages-
dc.subjectG28 - Government Policy and Regulation-
dc.titleCredit Default Swaps and Bank Regulatory Capital-
dc.typeArticle-
dc.identifier.emailTang, DY: yjtang@hku.hk-
dc.identifier.authorityTang, DY=rp01096-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1093/rof/rfaa021-
dc.identifier.hkuros313556-
dc.identifier.volumeEpub 2020-08-12-
dc.identifier.isiWOS:000649365800004-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl1572-3097-

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