The effect of lenders' credit risk transfer activities on borrowing firms' equity returns
Marsh, Ian W. (01.11.2006)
Numero
31/2006Julkaisija
Bank of Finland
2006
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201501291021Tiivistelmä
Although innovative credit risk transfer techniques help to
allocate risk more optimally, policy-makers worry that they may
detrimentally affect the effort spent by financial intermediaries
in screening and monitoring credit exposures.This paper examines
the equity market’s response to loan announcements.In common with
the literature it reports a significantly positive average excess
return – the well known ‘bank certification’ effect.However, if
the lending bank is known to actively manage its credit risk
exposure through large scale securitization programmes then the
magnitude of the effect falls by two-thirds.The equity market does
not appear to place any value on news of loans extended by banks
that are known to transfer credit risk off their books.
Key words: bank loans, credit derivatives, bank certification
JEL classification numbers: G12, G21
allocate risk more optimally, policy-makers worry that they may
detrimentally affect the effort spent by financial intermediaries
in screening and monitoring credit exposures.This paper examines
the equity market’s response to loan announcements.In common with
the literature it reports a significantly positive average excess
return – the well known ‘bank certification’ effect.However, if
the lending bank is known to actively manage its credit risk
exposure through large scale securitization programmes then the
magnitude of the effect falls by two-thirds.The equity market does
not appear to place any value on news of loans extended by banks
that are known to transfer credit risk off their books.
Key words: bank loans, credit derivatives, bank certification
JEL classification numbers: G12, G21