Instruments Of Credit Risk Transfer

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Instruments Of Credit Risk Transfer

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Author : John Kiff
language : en
Publisher:
Release Date : 2003

Instruments Of Credit Risk Transfer written by John Kiff and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003 with categories.

We review the limited available literature relating to markets for credit risk transfer. These markets help to complete incomplete financial markets for credit risk by facilitating the isolation of credit risk from other risks and extending the opportunities to manage credit risk. Yet, CRT markets give rise to additional risk management problems, and they also create new asymmetric information problems. Pricing for some CRT instruments also remains difficult. We identify the new problems created by CRT markets in terms of their effects on relationships between borrowers and lenders and between lenders and credit protection sellers. We also discuss how different forms of CRT instruments or contracts mitigate the problems to differing degrees. Finally, we identify three channels through which CRT markets may have financial stability implications: Firms' access to finance; monetary-policy-transmission mechanisms; and interactions between markets.

Credit Risk Transfer Instruments

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Author : Qaiser Abbas Khan
language : en
Publisher: LAP Lambert Academic Publishing
Release Date : 2011-12

Credit Risk Transfer Instruments written by Qaiser Abbas Khan and has been published by LAP Lambert Academic Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-12 with categories.

Financial crisis of 2007 has raised serious concerns regarding soundness of financial system. It has been pointed out by several academic scholars that root cause of recent turmoil is embedded deep and closely connected with innovation in credit risk transfer. This study examines the motives behind creation of derivative market and their role in financial meltdown. Among the credit derivatives the two most widely used or abused tools, credit default swaps and collateralized debt obligations, played a significant role in rapid establishment of credit derivative universe thereby leaving behind the long established equity market. The study further examines original concept of credit risk transfer along with their funding structure and dynamics of different tools highlighting the role of Regulators, Rating Agencies, Financial Institutions & contagion effects of innovation on financial industry and establishment of shadow banking. The study concludes on quotation of Terri Duhond that when car crash happens people only blame drivers rather than criticizing the authorities who allow them to drive.

The Credit Risk Transfer Market And Stability Implications For U K Financial Institutions

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Author : Li L. Ong
language : en
Publisher: International Monetary Fund
Release Date : 2006-06

The Credit Risk Transfer Market And Stability Implications For U K Financial Institutions written by Li L. Ong and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-06 with Business & Economics categories.

The increasing ability to trade credit risk in financial markets has facilitated its dispersion across the financial and other sectors. However, specific risks attached to credit risk transfer (CRT) instruments in a market with still-limited liquidity means that its rapid expansion may actually pose problems for financial sector stability in the event of a major negative shock to credit markets. This paper attempts to quantify the exposure of major U.K. financial groups to credit derivatives, by applying a vector autoregression (VAR) model to publicly available market prices. Our results indicate that use of credit derivatives does not pose a substantial threat to financial sector stability in the United Kingdom. Exposures across major financial institutions appear sufficiently diversified to limit the impact of any shock to the market, while major insurance companies are largely exposed to the "safer" senior tranches.

Credit Default Swaps

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Author : Christopher L. Culp
language : en
Publisher: Springer
Release Date : 2018-07-12

Credit Default Swaps written by Christopher L. Culp and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-07-12 with Business & Economics categories.

This book, unique in its composition, reviews the academic empirical literature on how CDSs actually work in practice, including during distressed times of market crises. It also discusses the mechanics of single-name and index CDSs, the theoretical costs and benefits of CDSs, as well as comprehensively summarizes the empirical evidence on important aspects of these instruments of risk transfer. Full-time academics, researchers at financial institutions, and students will benefit from the dispassionate and comprehensive summary of the academic literature; they can read this book instead of identifying, collecting, and reading the hundreds of academic articles on the important subject of credit risk transfer using derivatives and benefit from the synthesis of the literature provided.

Regulation Credit Risk Transfer With Cds And Bank Lending

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Author : Thilo Pausch
language : en
Publisher:
Release Date : 2016

Regulation Credit Risk Transfer With Cds And Bank Lending written by Thilo Pausch and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.

We integrate Basel II (and III) regulations into the industrial organization approach to banking and analyze the interaction between capital adequacy regulation and credit risk transfer with credit default swaps (CDS) including its effect on lending behavior and risk sensitivity of a risk-neutral bank. CDS contracts may be used to hedge a bank's credit risk exposure at a certain (potentially distorted) price. Regulation is found to induce the risk-neutral bank to behave in a more risk-sensitive way: Compared to a situation without regulation the optimal volume of loans decreases more as the riskiness of loansincreases. CDS trading is found to interact with the former effect when regulation accepts CDS as an instrument to mitigate credit risk. Under the substitution approach in Basel II (and III) a risk-neutral bank will over-, fully or under-hedge its total exposure to credit risk conditional on the CDS price being downward biased, unbiased or upward biased. However, the substitution approach weakens the tendency to over-hedge or under-hedge when CDS markets are biased. This promotes the intention of the Basel II (and III) regulations to 'strengthen the soundness and stability of banks'

Modern Credit Risk Management

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Author : Panayiota Koulafetis
language : en
Publisher: Springer
Release Date : 2017-02-08

Modern Credit Risk Management written by Panayiota Koulafetis and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-02-08 with Business & Economics categories.

This book is a practical guide to the latest risk management tools and techniques applied in the market to assess and manage credit risks at bank, sovereign, corporate and structured finance level. It strongly advocates the importance of sound credit risk management and how this can be achieved with prudent origination, credit risk policies, approval process, setting of meaningful limits and underwriting criteria. The book discusses the various quantitative techniques used to assess and manage credit risk, including methods to estimate default probabilities, credit value at risk approaches and credit exposure analysis. Basel I, II and III are covered, as are the true meaning of credit ratings, how these are assigned, their limitations, the drivers of downgrades and upgrades, and how credit ratings should be used in practise is explained. Modern Credit Risk Management not only discusses credit risk from a quantitative angle but further explains how important the qualitative and legal assessment is. Credit risk transfer and mitigation techniques and tools are explained, as are netting, ISDA master agreements, centralised counterparty clearing, margin collateral, overcollateralization, covenants and events of default. Credit derivatives are also explained, as are Total Return Swaps (TRS), Credit Linked Notes (CLN) and Credit Default Swaps (CDS). Furthermore, the author discusses what we have learned from the financial crisis of 2007 and sovereign crisis of 2010 and how credit risk management has evolved. Finally the book examines the new regulatory environment, looking beyond Basel to the European Union (EU) Capital Requirements Regulation and Directive (CRR-CRD) IV, the Dodd–Frank Wall Street Reform and Consumer Protection Act. This book is a fully up to date resource for credit risk practitioners and academics everywhere, outlining the latest best practices and providing both quantitative and qualitative insights. It will prove a must-have reference for the field.

Credit Risk Transfer

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Author : James R. Thompson
language : en
Publisher:
Release Date : 2014

Credit Risk Transfer written by James R. Thompson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

This paper analyzes credit risk transfer in banking. Specifically, we model loan sales and loan insurance (e.g. credit default swaps) as the two instruments of risk transfer. Recent empirical evidence suggests that the adverse selection problem is present in loan insurance as well as loan sales. Contrary to previous literature, this paper allows for informational asymmetries in both markets. Our results show that a bank with a low cost of capital will tend to use loan insurance regardless of loan quality in the presence of moral hazard and relationship banking costs of loan sales. Conversely, a bank with a high cost of capital may be forced into the loan sales market, even in the presence of possibly significant relationship and moral hazard costs that can depress the selling price. We show how credit risk transfer can lead to the efficient investment decision, but that there exists a parameter range in which it improves the investment decision only in banks with low quality loans. Furthermore, even under perfect information, the benefits of credit risk transfer are shown to be at least as high, or higher for banks with low quality loans.

Estimating The Exposures Of Major Financial Institutions To The Global Credit Risk Transfer Market

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Author : Jorge A. Chan-Lau
language : en
Publisher:
Release Date : 2009

Estimating The Exposures Of Major Financial Institutions To The Global Credit Risk Transfer Market written by Jorge A. Chan-Lau and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.

Credit risk transfer (CRT) instruments offer important diversification benefits but may magnify shocks since they disperse risk, across both financial and non-financial sectors. Exposures to CRT instruments, such as credit derivatives, are difficult to track, given the lack of public data on this activity. This paper proposes a simple method for estimating institutional exposures to credit derivatives, using readily-available and timely financial markets data. The results suggest the existence of a strong quot;home biasquot; in the exposures of institutions. Moreover, major financial institutions tend to have less risky exposures in Europe, but have riskier exposures in North America. Importantly, the findings on individual institutions appear to have been broadly borne out by revelations during the recent turmoil in global credit markets.

International Convergence Of Capital Measurement And Capital Standards

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Author :
language : en
Publisher: Lulu.com
Release Date : 2004

International Convergence Of Capital Measurement And Capital Standards written by and has been published by Lulu.com this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Bank capital categories.

Credit Risk Transfer And Financial Sector Performance

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Author : Wolf Wagner
language : en
Publisher:
Release Date : 2010

Credit Risk Transfer And Financial Sector Performance written by Wolf Wagner and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.

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.