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Post by Sapphire Capital on Aug 5, 2008 21:52:15 GMT 4
Solvency Regulation and Credit Risk Transfer Vittoria Cerasi Milano-Bicocca University - Department of Statistics Jean-Charles Rochet University of Toulouse I - Institut d'Economie Industrielle (IDEI); Centre for Economic Policy Research (CEPR) July 2008 Paolo Baffi Centre Research Paper No. 2008-21 Abstract: This paper analyzes the optimality of credit risk transfer (CRT) in banking. In a model where banks' main activity is to monitor loans, we show that a combination of CRT instruments, loan sales and credit derivatives, might be optimal while preserving monitoring incentives. Banks accessing CRT markets can insure against economic downturns and optimally redeploy capital when new investment opportunities arise. We derive implications for the optimal design of capital requirements. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1170982_code962400.pdf?abstractid=1170982&mirid=3
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