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    Title: Credit Risk Hedging, Deposit Insurance Fund Protection, and Default Risk in Retail Banking during a Financial Crisis
    Authors: Shi Chen;Lin, Ku-Jun
    Contributors: School of Economics, Southwestern University of Finance and Economics;淡江大學會計學系
    Keywords: Credit risk hedging;deposit insurance fund;spread behavior;default risk;barrier
    Date: 2015-02-03
    Issue Date: 2015-03-23 12:27:25 (UTC+8)
    Publisher: Toronto: Sciedu Press
    Abstract: The barrier options theory of corporate security valuation is applied to the contingent claims of a regulated bank. The regulator/insurer of the bank owns a down-and-in call option on the bank’s assets which can be balanced against the expected coverage cost. This paper examines how the bank’s credit risk hedging operation affects its spread behavior and performance and how these effects vary at various levels of the regulatory insurance fund protection. We find that an increase in the bank’s credit risk hedging has a negative effect on its loan rate, deposit rate, default risk, and liability value. The regulatory deposit insurance fund protection reinforces the reduction in bank default risk, thereby contributing to the stability of the banking system. The insurance fund protection with credit risk hedging confirms the requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
    Relation: Research in World Economy 6(1), pp.118-132
    DOI: 10.5430/rwe.v6n1p118
    Appears in Collections:[會計學系暨研究所] 期刊論文

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