Credit derivatives, disintermediation and investment decisions
The credit derivatives market provides a liquid but opaque forum for secondary market trading of banking assets. I show that when entrepreneurs rely upon the certification value of bank debts to obtain cheap bond market insurance, the existance of a credit derivatives market may cause them to issue...
Main Author: | |
---|---|
Format: | Working paper |
Published: |
University of Oxford
2001
|
_version_ | 1797105041664901120 |
---|---|
author | Morrison, A |
author_facet | Morrison, A |
author_sort | Morrison, A |
collection | OXFORD |
description | The credit derivatives market provides a liquid but opaque forum for secondary market trading of banking assets. I show that when entrepreneurs rely upon the certification value of bank debts to obtain cheap bond market insurance, the existance of a credit derivatives market may cause them to issue sub-investment grade bonds instead, and to engage in second-best behaviour. Credit derivatives can therefore cause disintermediation and thus reduce welfare. I argue that this effect can be most effectively countered by the introduction of reporting requirements for credit derivatives. |
first_indexed | 2024-03-07T06:41:54Z |
format | Working paper |
id | oxford-uuid:f990ffdd-1e03-4f56-a5a5-77a98e548863 |
institution | University of Oxford |
last_indexed | 2024-03-07T06:41:54Z |
publishDate | 2001 |
publisher | University of Oxford |
record_format | dspace |
spelling | oxford-uuid:f990ffdd-1e03-4f56-a5a5-77a98e5488632022-03-27T12:58:57ZCredit derivatives, disintermediation and investment decisionsWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:f990ffdd-1e03-4f56-a5a5-77a98e548863Bulk import via SwordSymplectic ElementsUniversity of Oxford2001Morrison, AThe credit derivatives market provides a liquid but opaque forum for secondary market trading of banking assets. I show that when entrepreneurs rely upon the certification value of bank debts to obtain cheap bond market insurance, the existance of a credit derivatives market may cause them to issue sub-investment grade bonds instead, and to engage in second-best behaviour. Credit derivatives can therefore cause disintermediation and thus reduce welfare. I argue that this effect can be most effectively countered by the introduction of reporting requirements for credit derivatives. |
spellingShingle | Morrison, A Credit derivatives, disintermediation and investment decisions |
title | Credit derivatives, disintermediation and investment decisions |
title_full | Credit derivatives, disintermediation and investment decisions |
title_fullStr | Credit derivatives, disintermediation and investment decisions |
title_full_unstemmed | Credit derivatives, disintermediation and investment decisions |
title_short | Credit derivatives, disintermediation and investment decisions |
title_sort | credit derivatives disintermediation and investment decisions |
work_keys_str_mv | AT morrisona creditderivativesdisintermediationandinvestmentdecisions |