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Tying Loan Interest Rates to Borrowers’ Credit Default Swap Spreads
Monday, February 10, 2014 7:03
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by Joao A. C. Santos – Liberty Street Economics, Federal Reserve Bank of New York
Banks’ practice of tying loan interest rates to borrowers’ credit default swap (CDS) spreads constitutes one of the most recent financial innovations. In this post, I discuss evidence from a research project, undertaken with Ivan Ivanov and Thu Vo, showing that this practice has lowered the cost of bank credit. I also discuss some potential drawbacks of this innovation.
Source: http://econintersect.com/b2evolution/blog1.php/2014/02/10/tying-loan-interest-rates-to-borrowers-credit-default-swap-spreads
