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

The Albert Gubay Business School

University of Calabria

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

Abstract

In a sample of European banks, we find that credit defaults 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
Journal	Finance Research Letters
Volume	26
Issue number	9
DOIs	https://doi.org/10.1016/j.frl.2018.02.008
Publication status	Published - Sept 2018

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

abstract = "In a sample of European banks, we find that credit defaults 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 defaults 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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JO - Finance Research Letters

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Credit default swaps and regulatory capital relief

Abstract

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