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...
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| Format: | Working paper |
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University of Oxford
2001
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| _version_ | 1797105041664901120 |
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| 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 |