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dc.contributor.authorKrahnen, Jan Pieteren_US
dc.contributor.authorWilde, Christianen_US
dc.date.accessioned2006-08-07en_US
dc.date.accessioned2009-07-24T13:47:49Z-
dc.date.available2009-07-24T13:47:49Z-
dc.date.issued2006en_US
dc.identifier.urihttp://hdl.handle.net/10419/25470-
dc.description.abstractLarge banks often sell part of their loan portfolio in the form of collateralized debt obligations (CDO) to investors. In this paper we raise the question whether credit asset securitization affects the cyclicality (or commonality) of bank equity values. The commonality of bank equity values reflects a major component of systemic risks in the banking market, caused by correlated defaults of loans in the banks’ loan books. Our simulations take into account the major stylized fact of CDO transactions, the nonproportional nature of risk sharing that goes along with tranching. We provide a theoretical framework for the risk transfer through securitization that builds on a macro risk factor and an idiosyncratic risk factor, allowing an identification of the types of risk that the individual tranche holders bear. This allows conclusions about the risk positions of issuing banks after risk transfer. Building on the strict subordination of tranches, we first evaluate the correlation properties both within and across risk classes. We then determine the effect of securitization on the systematic risk of all tranches, and derive its effect on the issuing bank’s equity beta. The simulation results show that under plausible assumptions concerning bank reinvestment behaviour and capital structure choice, the issuing intermediary’s systematic risk tends to rise. We discuss the implications of our findings for financial stability supervision.en_US
dc.language.isoengen_US
dc.publisherCenter for Financial Studies Frankfurt, Mainen_US
dc.relation.ispartofseriesCFS Working Paper 2006/04en_US
dc.subject.jelG28en_US
dc.subject.ddc330en_US
dc.subject.keywordRisk Transferen_US
dc.subject.keywordSystematic Risken_US
dc.subject.keywordSystemic Risken_US
dc.subject.stwBankgeschäften_US
dc.subject.stwKreditsicherungen_US
dc.subject.stwRisikoen_US
dc.subject.stwMonte-Carlo-Methodeen_US
dc.titleRisk transfer with CDOs and systemic risk in bankingfamen_US
dc.typeWorking Paperen_US
dc.identifier.ppn515332674en_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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