Work

CDS and credit: The effect of the bangs on credit insurance, lending and hedging

Year: 2025

Type: article

Abstract: 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.

Source: Journal of Empirical Finance

DOI: 10.1016/j.jempfin.2025.101583

Authors: Yalin Gündüz, Steven Ongena, Günseli Tümer-Alkan, Yuejuan Yu

Institutions: Deutsche Bundesbank, University of Zurich, Swiss Finance Institute, KU Leuven, Vrije Universiteit Amsterdam, Shandong University

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $2,940

OpenAlex ID: W4407098779

FWCI: 0.946

Cites: 75

Cited by: 2

Related to: 10