Effects of CDS on Risk of Banking System:What Should Be Worried about in the Introduction of CDS ?
Credit default swaps(CDS)is a bilateral contract that guarantees the risks caused by possible defaults of certain debts.The credit default market of China is in the ascendant.The discussion on the relationship between the credit derivatives and the stability of the banking industry has formed two camps of stability theory and fragility theory.At present,it is an indisputable fact that the credit derivatives are recovering under the regulation in general.Since the risk factors of bank credit derivatives trading are mainly the banks own capital,assets,risk,policy,macroeconomic and financial situation,regulatory policy,industry risk status,and the risk status of bank counterparty and its financial sub-sector,this paper will discuss the impact of credit default swaps on the overall risk of the banking industry from a micro perspective,and give corresponding policy suggestions.Actually,we found that their first usage of risk transfer method like CDS,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 this risk transfer method before the actual onset of crisis.We address the question of the source of the beta effect by separating it into a volatility and a market correlation component.Surprisingly,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 like trading CDS may appear individually less risky,while actually posing a greater risk for the financial system.
CDS Bank industry Risk transfer
Yicun Wang Desheng Wu
School of Management,University of Chinese Academy of Sciences,Beijing,100190,China
国际会议
上海
英文
288-291
2017-07-07（万方平台首次上网日期，不代表论文的发表时间）