Credit Derivatives and Loan Pricing

This paper examines the relationship between the new markets for credit default swaps (CDS) and the pricing of syndicated loans to U.S. corporates. We find that changes in CDS spreads have a significantly positive coefficient and explain about 25% of subsequent monthly changes in aggregate loan spreads during 2000-2005. Moreover, when compared to traditional loan pricing factors, they turn out to be the dominant determinant of loan spreads. In particular, they explain loan rates much better than same rated bonds. This suggests that, even though CDS and bond markets may equally price market credit risk, a substantial part of CDS prices additionally contains loan-specific information. We also find that, over time, new information from CDS markets is incorporated into loans faster, but information from other markets is not. We argue that this indicates that the markets for CDS influence banks’ loan pricing behavior and thus have an impact on actual financing decisions in the economy.Syndicated Lending;Loan Rates;Credit Derivatives;Credit Markets;Credit Spreads

Hybrid holographic system using reflected and transmitted object beams simultaneously Patent

Hybrid holographic system using reference, transmitted, and reflected beams simultaneousl

Hybrid holographic system

Improved holographic system has high degree of resolution and capability of providing a hologram of a moving object without requiring that the system have a high mechanical stability

Why business credit information sharing leads to better lending decisions

__Abstract__ Bad loans are made in boom times. Good loans are made in recessionary times. Lenders such as suppliers who provide trade credit or banks would be well advised to remember this simple dictum whenever they are approached for credit by a borrower not entirely familiar to them

Soft information matters in SME lending

Loan data from small and medium-sized enterprises (SMEs) has shown that such positive attributes as good management skills and character – so-called ‘soft’ facts – can improve a borrower’s bargaining power with their bank and thus loan terms

Bargaining power and information in SME lending

Small- and medium-sized enterprises (SMEs) are informationally opaque and bank dependent. In SME lending, banks largely rely on soft information, because the scale and scope of hard information are limited. We analyze whether and how hard and soft information affects the borrower's bargaining power vis-à-vis its bank. We use the fact that, for a given credit rating, certain borrowers obtain better loan terms than others to define measures of relative bargaining power. Using SME loan data from the USA and Germany, we find that more favorable soft information (management skills and character) increases borrower bargaining power. We also show that more favorable soft than hard information improves borrower bargaining power. The results are not driven by manipulation or statistical limitations of the credit ratings. Our study suggests that soft information represents an important and direct determinant of borrower bargaining power, affecting the outcomes of the loan contracting process

Extending invariant complex structures

We study the problem of extending a complex structure to a given Lie algebra g, which is firstly defined on an ideal h of g. We consider the next situations: h is either complex or it is totally real. The next question is to equip g with an additional structure, such as a (non)-definite metric or a symplectic structure and to ask either h is non-degenerate, isotropic, etc. with respect to this structure, by imposing a compatibility assumption. We show that this implies certain constraints on the algebraic structure of g. Constructive examples illustrating this situation are shown, in particular computations in dimension six are given.Comment: 22 pages, plus an Addendu

Do bank bailouts have a silver lining?

__Abstract__ Much criticism was levelled at the USA’s Troubled Asset Relief Program (TARP) at the time it was announced in the autumn of 2008. Many of its opponents argued that not a penny of taxpayer money should have been spent on shoring up US banks. But were they right

The Role of Banks in SME Finance

__Abstract__ Banks play a crucial role for the financing of small and medium-sized enterprises (SMEs). SMEs represent a large fraction of all firms in many economies and contribute significantly to employment and growth. But, SMEs are more informationally opaque, more risky, more financially constrained, and more bank-dependent than large firms, which creates serious challenges in SME finance. In this inaugural address, I focus on lending technologies to cope with key challenges in SME finance. I present evidence from two recent empirical studies. The first conclusion is that relationship lending works. Applying meta-analysis in a cross-country context, we show that, on average, borrowers benefit from relationship lending. SMEs obtain more credit and/or lower loan rates under relationship lending. Furthermore, bank competition makes benefits for borrowers more likely. The second conclusion is that trade credit has limited scope to replace bank debt when the latter is subject to a shock. SMEs in Europe have countered a shock to their bank debt to some extent with trade credit. However, substitution has become increasingly difficult during the financial crisis and was only possible for a subset of firms: the ones with better credit quality and intermediate financial constraints. Overall, a comprehensive understanding of lending technologies such as relationship lending and trade credit is critical for lenders, borrowers, and policymakers to ensure the proper functioning of SME finance