Economics, Econometrics and Finance
3 years ago

Credit default swaps by banks may destabilize banking sector in economic downturns.

SSRN Electronic Journal
The Stability of the Banking Sector and Credit Default Swaps
Ulrike Neyer, Frank Heyde

Paper Summary

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The article discusses how banks using credit default swaps can increase their risk by investing more in risky assets. This can benefit depositors but may make the banking sector less stable during economic ups and downs.