CDS and Credit : After the Bangs Cheaper Credit Insurance, More Lending and Hedging

Does the cost of credit insurance affect the availability of credit? To answer this question, we couple comprehensive bank-firm level CDS trading data from DTCC to the German credit register containing bilateral bank-firm credit exposures. We assess the differential impact on market participants of the “Big Bang” and “Small Bang” standardization across CDS markets. 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 cost – these banks extend more credit to CDS traded and affected firms, and also hedge more effectively