Researchers' attempts to identify the valuation of collateral has been hampered by data limitations. We overcome this challenge by comparing spreads on loans originated by the same bank, to the same firm, at the same origination date, but with different types of collateral. We find that securing...

Lenders can transfer credit risk by purchasing credit default swaps (CDS), but holding swaps can diminish their incentives to monitor borrowers. Contracting theory predicts that lenders demand conservatism, in particular asymmetric timeliness of loss recognition, to effectively monitor...

This paper investigates whether the initiation of trading in credit default swaps (CDSs) on a borrowing firm's outstanding debt is associated with a decline in that firm's reporting conservatism. CDS investments can modify lenders' payoffs on their loan portfolios by providing insurance on...

We investigate how the introduction of market-based pricing, the practice of tying loan interest rates to credit default swaps, has affected bank financing. We find that market-based pricing is associated with lower interest rates, both at origination and during the life of the loan. Our results...

This paper proposes a model to conduct macro stress test of credit risk for the banking sector based on scenario analysis. We employ an original bank-level data set that splits bank credit portfolios in 21 granular categories, covering household and corporate loans. The results corroborate the...

If the creditworthiness of a counterparty is a derivative of a commodity price, there is the potential to have right- or wrong-way exposures in respective commodity transaction. Identifying them is important, because otherwise credit costs might be inadequately calculated and wrong incentives...

The replacement closeout convention has drawn more and more attention since the 2008 financial crisis. Compared with the conventional risk-free closeout, the replacement closeout convention incorporates the creditworthiness of the counterparty and thus providing a more accurate estimate of the...

This paper proposes a model to conduct macro stress test of credit risk for the banking system based on scenario analysis. We employ an original bank-level data set that splits bank credit portfolios in 21 granular categories, encompassing household and corporate loans. The results corroborate...

We propose a comprehensive approach for the analysis of real economy and government sector risk transmission to the banking system and apply it in ten Euro-Area countries from 2005 to 2017. A flexible methodology is developed to model banks' assets according to the risk-adjusted balance sheet of...

The European low-carbon transition began in the last few decades and is accelerating to achieve net-zero emissions by 2050. This paper examines how climate-related transition indicators of a large European corporate firm relate to its CDS-implied credit risk across various time horizons....