The Influence Of Credit Derivatives On The Scale And Quality Of Bank Credit Supply

The outbreak of the subprime crisis in the U.S. showed the negative effects to financial system of credit derivatives, which attracted wide attention and controversy. Commercial bank is very important participant, thus we can get information about what effect has credit derivatives exerted to the financial system, and look into the way to make best use of the advantages and bypass the disadvantages to support the credit derivatives innovation in China.This paper first introduces the principle and the development of credit derivatives innovation. Then, it analysis the influence of credit derivatives on commercial Banks'behavior theoretically based on three perspectives: portfolio management, information asymmetry and loan promotion which can derive that the net effect of credit derivatives is the offset result of positive and negative.Then, the paper gives a further study on the influence of credit derivatives based on the dynamic penal data from America's derivatives market including regression analysis on loan size, loan structure, loan quality and bank return. The empirical results are as follows:The use of credit derivatives did not increase total loan scale ,while increased the proportion of loan with high risk, and lower the quality of total loan. Besides, it did not affects the banks'profitability.Finally, based on both theoretical and empirical results, the paper proposes policy recommendations on two aspects: to improve regulate mechanism including pools control, information transparency and timely update; to improve market efficiency including better intermediary organs, perfecting low structure and active secondary market.