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Syndicated loans and CDS positioning

Author

Listed:
  • Aldasoro, Iñaki
  • Barth, Andreas

Abstract

This paper analyzes banks’ usage of CDS. Combining bank-firm syndicated loan data with a unique EU-wide dataset on bilateral CDS positions, we find that stronger banks in terms of capital, funding and profitability tend to hedge more. We find no evidence of banks using the CDS market for capital relief. Banks are more likely to hedge exposures to relatively riskier borrowers and less likely to sell CDS protection on domestic firms. Lead arrangers tend to buy more protection, potentially exacerbating asymmetric information problems. Dealer banks seem insensitive to firm risk, and hedge more than non-dealers when they are more profitable. These results allow for a better understanding of banks’ credit risk management. JEL Classification: G21, G28

Suggested Citation

  • Aldasoro, Iñaki & Barth, Andreas, 2017. "Syndicated loans and CDS positioning," ESRB Working Paper Series 58, European Systemic Risk Board.
    • Handle: RePEc:srk:srkwps:201758
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    File URL: https://www.esrb.europa.eu//pub/pdf/wp/esrb.wp58.en.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    asymmetric information; capital regulation; CDS; cross-border lending; EMIR; speculation; syndicated loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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