Download Free Regulation Credit Risk Transfer With Cds And Bank Lending Book in PDF and EPUB Free Download. You can read online Regulation Credit Risk Transfer With Cds And Bank Lending and write the review.

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'
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.
Discover an accessible and comprehensive overview of credit risk management In the newly revised Second Edition of The Handbook of Credit Risk Management: Originating, Assessing, and Managing Credit Exposures, veteran financial risk experts Sylvain Bouteillé and Dr. Diane Coogan-Pushner deliver a holistic roadmap to credit risk management (CRM) ideal for students and the busy professional. The authors have created an accessible and practical CRM resource consistent with a commonly implemented risk management framework. Divided into four sections—Origination, Credit Assessment, Portfolio Management, and Mitigation and Transfer—the book explains why CRM is critical to the success of large institutions and why organizational structure matters. The Second Edition of The Handbook of Credit Risk Management also includes: Newly updated and enriched data, charts, and content Three brand new chapters on consumer finance, state and local credit risk, and sovereign risk New ancillary material designed to support higher education and bank credit training educators, including case studies, quizzes, and slides Perfect for risk managers, corporate treasurers, auditors, and credit risk underwriters, this latest edition of The Handbook of Credit Risk Management will also prove to be an invaluable addition to the libraries of financial analysts, regulators, portfolio managers, and actuaries seeking a comprehensive and up-to-date guide on credit risk management.
A main cause of the ongoing financial crisis is the various ways through which banks have transferred credit risk in the financial system. In this paper we study the riskiness of banks that have used these methods, as perceived by the market. For this we analyze a sample of banks that trade Credit Default Swaps (CDS) and a sample of banks that issued Collateralized Loan Obligations (CLOs) between 1997 and 2006. We find that after their first usage of either risk transfer method, these banks experience a large and significant permanent increase in their share price beta. This suggests that the market was aware of the risks arising from these methods, long before the actual onset of the crisis. We also address the question of the source of the beta effect by separating it into a volatility and a market correlation component. Quite strikingly we find that the increase in the beta is solely due to an increase in banks' correlations. The volatility of these banks' returns actually declines. This suggests that banks undertaking credit risk transfer activities may appear individually less risky, while actually posing a greater risk for the financial system. We argue that this posits a challenge for financial regulation, which has typically focused on the level of the individual institution.
The book’s content is focused on rigorous and advanced quantitative methods for the pricing and hedging of counterparty credit and funding risk. The new general theory that is required for this methodology is developed from scratch, leading to a consistent and comprehensive framework for counterparty credit and funding risk, inclusive of collateral, netting rules, possible debit valuation adjustments, re-hypothecation and closeout rules. The book however also looks at quite practical problems, linking particular models to particular ‘concrete’ financial situations across asset classes, including interest rates, FX, commodities, equity, credit itself, and the emerging asset class of longevity. The authors also aim to help quantitative analysts, traders, and anyone else needing to frame and price counterparty credit and funding risk, to develop a ‘feel’ for applying sophisticated mathematics and stochastic calculus to solve practical problems. The main models are illustrated from theoretical formulation to final implementation with calibration to market data, always keeping in mind the concrete questions being dealt with. The authors stress that each model is suited to different situations and products, pointing out that there does not exist a single model which is uniformly better than all the others, although the problems originated by counterparty credit and funding risk point in the direction of global valuation. Finally, proposals for restructuring counterparty credit risk, ranging from contingent credit default swaps to margin lending, are considered.