In a sample of European banks, we find that credit default swaps (CDS) are used for regulatory arbitrage to lower capital requirements and facilitate greater risk taking. Moreover, CDS-using banks generate higher returns on capital from the lower risk weighted assets they hold relative to banks that do not use CDS.
|Number of pages||6|
|Journal||Finance Research Letters|
|Early online date||23 Feb 2018|
|Publication status||Published - Sep 2018|