Credit default swaps and regulatory capital relief

John Thornton; Caterina di Tommaso

doi:10.1016/j.frl.2018.02.008

Credit default swaps and regulatory capital relief

John Thornton, Caterina di Tommaso

Norwich Business School

Research output: Contribution to journal › Article › peer-review

8 Citations (Scopus)

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Abstract

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.

Original language	English
Pages (from-to)	255-260
Number of pages	6
Journal	Finance Research Letters
Volume	26
Issue number	9
Early online date	23 Feb 2018
DOIs	https://doi.org/10.1016/j.frl.2018.02.008
Publication status	Published - Sep 2018

Access to Document

10.1016/j.frl.2018.02.008

Accepted_ManuscriptAccepted author manuscript, 683 KBLicence: CC BY-NC-ND

Cite this

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title = "Credit default swaps and regulatory capital relief",

abstract = "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.",

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AB - 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.

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