Credit derivatives: Banks' behaviour, financial stability and banking regulation
Abstract
This paper studies the emergence and development of credit derivatives, and how they have significantly changed the area of credit risk management. In studying the behavioural effects of credit derivatives on banks' behaviour, the theoretical analysis incorporates the modelling of optimal bank capital reserves with the use of credit derivatives by employing an inventory management framework. It is shown that credit derivatives can lead banks to reduce their capital buffer stock, which can have multiple effects on banks' behaviour. By considering these effects in parallel with the existing literature, this paper investigates the implications of credit derivatives with respect to financial stability and banking regulation.
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Author's Biography
Konstantinos N. Karras works at the Risk Management Division of Emporiki Bank, Athens, Greece, where he manages the Basel II and the risk & IT interface projects. He is also a visiting lecturer at the Department of Accounting and Finance at Athens University of Economics and Business. He has previously worked as a senior risk analyst and economic analyst at Emporiki Bank, and as a researcher at the Research Centre of Athens University of Economics and Business. He holds a PhD in economics, a master’s degree in money, banking and finance from University of Birmingham, UK, and a BA in economics. He is also a member of the Greek chapter of the Professional Risk Managers’ International Association.
Citation
Karras, Konstantinos N. (2009, March 1). Credit derivatives: Banks' behaviour, financial stability and banking regulation. In the Journal of Risk Management in Financial Institutions, Volume 2, Issue 2. https://doi.org/10.69554/MBNA3382.
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