Arbeitspapier
Credit Protection and Lending Relationships
We examine the impact CDS protection on lending relationships and efficiency. CDS insulate lenders against losses from forcing borrowers into default and liquidation. This improves the credibility of foreclosure threats, which can have positive implications for borrower incentives and credit availability ex ante. However, lenders may also abuse their enhanced bargaining power vis-a-vis borrowers and extract additional surplus in debt renegotiations. If this hold up threat becomes severe, borrowers will be reluctant to agree to debt maturity designs or control right transfers that would have been optimal in the absence of CDS protection. The introduction of CDS markets may then ultimately tighten credit constraints and be detrimental to welfare.
- Language
-
Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. 12-142/IV/DSF48
- Classification
-
Wirtschaft
- Subject
-
Corporate Lending
Financial Innovation
Credit Default Swaps
Credit Derivatives
Credit Risk Transfer
Empty Creditor Problem
- Event
-
Geistige Schöpfung
- (who)
-
Arping, Stefan
- Event
-
Veröffentlichung
- (who)
-
Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2012
- Handle
- Last update
-
10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Arping, Stefan
- Tinbergen Institute
Time of origin
- 2012
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Financial Protection Against Medical Expense
Banking Competition and Soft Budget Constraints: How Market Power can threaten Discipline in Lending
Leniency Bias in Long-Term Workplace Relationships
Optimal Taxation of Human Capital and Credit Constraints
CDOs and the Financial Crisis: Credit Ratings and Fair Premia
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Two Birds with One Stone: Technology Adoption and Market Participation through Protection against Crop Failure