Default risk sharing between banks and markets
Subtitle: the contribution of collateralized debt obligations
By: Guenter Franke, Jan Pieter Krahnen.
Contributors: Krahnen, Jan Pieter.; National Bureau of Economic Research.
Series: NBER working paper series ;; working paper 11741; Working paper series (National Bureau of Economic Research : Online) ;; working paper no. 11741.
Publisher: National Bureau of Economic Research
Published: 2005
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Collateralized debt obligations -- Europe.
Description: "This paper contributes to the economics of financial institutions risk management by exploring how loan securitization affects their default risk, their systematic risk, and their stock prices.  In a typical CDO transaction a bank retains through a first loss piece a very high proportion of the default losses, and transfers only the extreme losses to other market participants.  The size of the first loss piece is largely driven by the average default probability of the securitized assets.  If the bank sells loans in a true sale transaction, it may use the proceeds to expand its loan business, thereby affecting systematic risk.  For a sample of European CDO issues, we find an increase of the banks' betas, but no significant stock price effect around the announcement of a CDO issue"--National Bureau of Economic Research web site.
Notes: Includes bibliographical references.
Title from PDF file as viewed on 11/30/2005.
Also available in print.
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Mode of access: World Wide Web.