Journal of Empirical Finance

Credit default swaps; Credit exposure; Hedging; Bank lending; Depository Trust and Clearing Corporation (DTCC)

We assess the differential impacts of “Big Bang” and “Small Bang” contracts and convention changes on market participants across CDS markets and couple comprehensive bank-firm-level CDS trading data from the DTCC to the German credit register containing bi-lateral bank-firm credit exposures. We find that after the Bangs, the cost of buying CDS contracts becomes lower for non-dealer banks and that, because of this decrease in insurance costs, these banks extend relatively more credit to CDS-traded and affected firms compared to dealers, and hedge more effectively. Hence, standardization lowers the cost of credit insurance and leads to a relative increase in credit extensions by non-dealer banks.

Journal paper

Economics

Finance

81

0927-5398

no

2025-02-01

SSCI