Credit risk and bank margins in structured financial products: Evidence from the German secondary market for discount certificates

ABSTRACT:Many ethicists argue that contract theory offers the most promising strategy for regulating risks. I challenge the adequacy of the contractualist approach for evaluating the complicated, novel risks associated with some structured financial products, particularly focusing on risks to third parties. Structured financial products like collateralized debt obligations (CDOs) divide a pool of financial assets into risk “tranches” organized from least to most risky. Investors purchase various tranches based on their individual risk-and-return preferences. Whereas contract theory holds that investment risks are ethically permitted (roughly) when everyone—including both parties directly involved in the investments and third parties—consents to them, structured financial products like CDOs show that even risks to which everyone consents are ethically problematic when they involve systemic risks of ruin.

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CREDIT RISK MANAGEMENT IN THE SECONDARY MARKET FOR AUTOMOTIVE PARTS IN THE REPUBLIC OF CROATIA

Zbornik radova - Journal of Economy and Business ◽

10.46458/27121097.2017.si.133 ◽

2017 ◽

pp. 133-147

Keyword(s):

Credit Risk ◽

Fundamental Problem ◽

Balance Sheet ◽

The State ◽

Secondary Market ◽

Credit Risk Management ◽

Organic Growth ◽

Fundamental Cause ◽

Automotive Parts ◽

The Republic

In recent years, there has been a dramatic decrease in the sale of new automobiles on the market of the Republic of Croatia. When considering certain periods, the sale reached its peak in 2008, with 88,265 vehicles sold. In 2013, the sale was reduced by 68.5%, and 27,802 vehicles were sold. 2014 and 2015 saw a slight recovery with 35,715 vehicles sold. This increase was related to the fact that the state, through certain ministries, bought new automobiles and thus made 20% of the above-mentioned number. Devastation in the market of new automobiles was accompanied by an increase in the sale of used vehicles, both in the country (which was caused by the fact that vehicle lease agreements of the State Administration expired, replaced by the above-mentioned share in the sales of new vehicles) and from abroad. This caused an increase in the average vehicle age in the Republic of Croatia. Consequently, the secondary market for automotive parts has been experiencing organic growth at high rates, thus determining obvious propulsiveness. The five largest companies in the secondary market for automotive parts in the Republic of Croatia generate annual revenue of HRK 1,253,655,892 (EUR 166423) through wholesale and retail. As the result of these sales methods, we have a very diverse client base in all the major companies on the market with the fundamental problem of credit risk, mainly due to the fact that the highest percentage of revenue is generated through operations with automobile repair workshops, whose balance sheet indicators are extremely poor. In such circumstances, it is essential to use a more serious approach to the problem of determining clients’ creditworthiness, as the basis for better liquidity. This paper presents a model for the assessment of clients’ creditworthiness, as a possible solution to the problem of illiquidity in the Croatian secondary market for automotive parts. The model provides for the establishment of the client base, with a combination of elements of qualitative analysis and financial and quantitative analysis to assess credit risk, as well as continuous monitoring of the base. By applying this model, the credit risk of every client, as the fundamental cause of illiquidity in this sector, would be noticed on time and measures for its reduction would be taken.

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What is your desire? Retail investor preferences in structured products

Review of Behavioral Finance ◽

10.1108/rbf-10-2020-0254 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Rainer Baule ◽

Patrick Muenchhalfen

Keyword(s):

Design Methodology ◽

Recent Literature ◽

Product Structure ◽

Content Type ◽

Financial Products ◽

Retail Investors ◽

Retail Investor ◽

Retail Products ◽

Structured Financial Products ◽

Insight Into

PurposeThe authors evaluate the preferences of retail investors with regard to the investment in structured financial products. The purpose of the paper is an analysis of the relative importance of key product attributes namely the issuing bank, the product structure, the associated costs and the disclosed risk.Design/methodology/approachThe authors conduct a choice-based conjoint analysis, based on an online experiment. Participants judge their preferences for products which are presented by shortened key information documents according to the requirements of EU regulation.FindingsInvestors consider the costs and the product structure to be most important, whereas the issuer and information on risk are of less interest. Their preferences depend on their (self-evaluated) expertise: while inexperienced retail investors concentrate on costs, experienced investors pay more attention to the product structure.Research limitations/implicationsThe study is limited to a subsegment of the market, the discount certificates. For these products, issuing banks gain insight into the attractiveness of their products. Furthermore, the study carries implications for regulators: since investors emphasize the costs in their decisions, an unbiased disclosure of costs should be enforced.Originality/valueWhile the recent literature has studied preferences for the investment in mutual funds, this is the first paper which directly analyzes the drivers of an investment in structured retail products.

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Corporate Bonds and Structured Financial Products

10.1016/b978-0-7506-6261-1.x5032-4 ◽

2004 ◽

Keyword(s):

Corporate Bonds ◽

Financial Products ◽

Structured Financial Products

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IMPROVING MANAGING THE CREDIT RISK IN CONDITIONS SLOWING ECONOMIC GROWTH

International Journal of New Economics and Social Sciences ◽

10.5604/01.3001.0010.3753 ◽

2015 ◽

Vol 1 (1) ◽

pp. 17-29

Author(s):

Dariusz Prokopowicz

Keyword(s):

Economic Growth ◽

Financial Crisis ◽

Credit Risk ◽

Economic Downturn ◽

Financial Systems ◽

Financial Products ◽

Increased Risk ◽

Business Entities ◽

Recent Financial Crisis ◽

Lending Institutions

The recent financial crisis in 2008 has made a significant contribution to the growing importance of the analysis of processes of credit risk management and forced to take measures to improve the process. Sources of the financial crisis is now largely associated with the activities of mainly US investment banks that sold derivatives on the basis of income from high-risk mortgages. Increased risk recorded in the banking business, as a rule, also a derivative of the economic downturn in the sectors of bank customers, including non-financial business entities. In such a situation, banks are limited to provide customers with a more risky loan pro-active financial products. Given the global nature of financial markets and the importance of investment banking in the financial systems and the necessary actions to improve the tools for identifying, quantifying and managing banking risks, especially credit and lending institutions to protect themselves from potential sources of risk. The present analysis showed that the anti-crisis measures are mainly focused on the introduction of additional restrictions in the provision of financial products that may not be enough and may even be harmful, helping to reduce the economic growth of individual countries. Measures are also needed to strengthen supervisory agencies in the financial systems, including transnational supervision.

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The Impact of Business Scale of “Shadow Banking” on Credit Risk of Commercial Banks --Take Ten Domestic Listed Commercial Banks as Examples

International Journal of Economics and Finance ◽

10.5539/ijef.v9n5p94 ◽

2017 ◽

Vol 9 (5) ◽

pp. 94 ◽

Cited By ~ 1

Author(s):

Sijia Wen ◽

Jishan Ma ◽

Yawen Pan ◽

Yuan Qi ◽

Ruizhi Xiong

Keyword(s):

Credit Risk ◽

Commercial Banks ◽

Balance Sheet ◽

Commercial Banking ◽

Shadow Banking ◽

Financial Products ◽

Banking Business ◽

The Government ◽

Definition Of ◽

The Impact

In this article, according to search for the definition of shadow banking, we can make sure the business kinds of “shadow banking”, discuss the influence of business in “shadow banking” on credit risk of commercial banks, and study the elements which may increase the credit risk of commercial banks by using the semi-annual panel data during 2011-2016 of 10 listed banks. Then we can come to some primary conclusions: The credit risk of commercial banks is related to the shadow banking business. All the survival scale increment of financial products increasing, the size of entrusted loans increasing in increment, and the increasing in the size of guarantee commitments will increase the credit risk of commercial banks. There is no obvious relationship between trust loan business and bank credit risk. Our study is of great significance for the government to supervise the off-balance-sheet business of commercial banks. At the same time, it also fills the vacancy of domestic commercial banking “shadow banking” business empirical research.

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