Enhanced disclosure of credit derivatives, information asymmetry, and credit risk

AbstractFrom Theresia Theurl’s point of view financial markets exhibit certain features that turn them inherently unstable. Therefore, economic policy measures were necessary and advisable, but they should not take the shape of isolated and selected interventions. Rather, these measures of financial market supervision and regulation had to be integrated into a comprehensive concept of micro- and macroeconomic policy in order to allow the creation of stabilizing trust.In his contribution, Jan Pieter Krahnen maintains, that the systemic risk of banks and financial institutions has changed and risen in recent years. According to his view, this is due to a more widespread use of credit derivatives. Although they may cause a more efficient distribution of credit risk in the banking sector, at the same time they could mean a higher vulnerability of the banking sector to system-wide contagion effects of credit risk. As such, financial market supervision as well as the Basel II rules on Capital Standards should take into account not only the credit risk exposure of individual financial institutions, but also correlation measures of their share prices.For Thomas Gehrig, empirical anomalies demonstrate the relevance of awareness and trust in financial markets. This note would argue in favor of social policies that enhance public awareness in financial markets as a basis for trust. And so naturally, these policies need to be complemented by a strong financial order that aims at minimizing behavioral risks. He says, trust requires a regulatory framework that reduces manipulation by private as well as public interests. A competitive order complemented by strong regulatory oversight may go a long way towards generating liquid financial markets and the creation of trust. Trust by individuals, however, would be most strongly encouraged when individuals are entrusted in managing their own financial market activities including their own pension arrangements.

Download Full-text

Credit Derivatives and Hedging Credit Risk

Advanced Bond Portfolio Management ◽

10.1002/9781119201151.ch15 ◽

2015 ◽

pp. 373-388

Author(s):

Donald R. van Deventer

Keyword(s):

Credit Risk ◽

Credit Derivatives

Download Full-text

Debt Maturity, Credit Risk, and Information Asymmetry: The Case of Municipal Bonds

Financial Review ◽

10.1111/j.1540-6288.2010.00263.x ◽

2010 ◽

Vol 45 (3) ◽

pp. 603-626 ◽

Cited By ~ 14

Author(s):

Kenneth Daniels ◽

Demissew Diro Ejara ◽

Jayaraman Vijayakumar

Keyword(s):

Credit Risk ◽

Information Asymmetry ◽

Debt Maturity ◽

Municipal Bonds

Download Full-text

Credit Derivatives Market - Counterparty Risk, Collateral Management and CVA - Regulatory Requirements on Counterparty Credit Risk

SSRN Electronic Journal ◽

10.2139/ssrn.2218279 ◽

2013 ◽

Author(s):

Samuel Migus

Keyword(s):

Credit Risk ◽

Credit Derivatives ◽

Counterparty Risk ◽

Regulatory Requirements ◽

Counterparty Credit Risk

Download Full-text

The decision mechanism of banks' credit risk based on information asymmetry

Proceedings of the 2000 American Control Conference. ACC (IEEE Cat. No.00CH36334) ◽

10.1109/acc.2000.879199 ◽

2000 ◽

Author(s):

Sulin Pang ◽

Yongqing Liu ◽

Rongzhou Li

Keyword(s):

Credit Risk ◽

Information Asymmetry ◽

Decision Mechanism

Download Full-text

The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry and the Moderating Effect of Own Credit Risk Gains and Losses

The Accounting Review ◽

10.2308/accr-52070 ◽

2018 ◽

Vol 93 (6) ◽

pp. 127-147 ◽

Cited By ~ 5

Author(s):

Joana C. Fontes ◽

Argyro Panaretou ◽

Kenneth V. Peasnell

Keyword(s):

Credit Risk ◽

Information Asymmetry ◽

Fair Value ◽

Data Availability ◽

Bid Ask Spread ◽

Fair Value Measurement ◽

Gains And Losses ◽

Value Measurement ◽

The Impact

ABSTRACT We examine whether the use of fair value measurement (FVM) for bank assets reduces information asymmetry among equity investors (bid-ask spread) and how this is affected by the recognition of own credit risk gains and losses (OCR). Our findings show that FVM of assets is associated with noticeably lower information asymmetry, and that this reduction is more than twice as large when banks also recognize OCR. In addition, we find that the bid-ask spread is incrementally lower for banks that provide more detailed narrative disclosures on OCR. The findings also indicate that the effects of asset FVM and OCR recognition on the bid-ask spread do not simply capture the differences in the characteristics of the banks and the quality of their information environments. Data Availability: All data are available from public sources.

Download Full-text