A Look Under the Hood: How Banks Use Credit Default Swaps, Accessible Data
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Figure 1: Loan and corporate bond positions
Panel (a) in Figure 1 shows the time series of the total amount of loan issued by all the BHCs between Q3:2011 and Q4:2015. The black line shows the committed amount (left axis) and the red line shows the utilized amount of the loans (right axis). We notice that both the amount of credit extended by the banks and the amount of credit utilized by debtors are growing at similar rates. The large jump in both variables in the second quarter of 2012 is the result of additional banks being included in the CCAR supervisory exercise.
Panel (b) of Figure 1 shows the market value of the BHCs’ corporate bond portfolios between Q3:2011 and Q4:2015.The value is steady from 2011 through the first half of 2012, and averages around $75 billion, and then begins to decline and level off at around $30 billion by the end of 2015.
Figure 2: CDS Use and Insured Positions
In Figure 2, we plot the total notional value of the net CDS positions, the value of utilized loans, and the market value of outstanding bonds held by BHCs at the reference entity level. Because we compare CDS use to credit exposure, we reverse the sign of the total net positions so that a positive number represents the net amount of protection sold. The first thing to note is that the size of total net protection sold is generally larger than the size of direct credit exposure. Second, the utilized loan amount for firms that have a CDS contract trade on their bond issuance grows similarly to the overall utilized loan amounts in Figure 1. Third, the notional value of net protection sold on single name CDS contracts largely tracks the trajectory of the utilized loan amounts until the beginning of 2015. Lastly, the market value of bonds issued by CDS firms declines similarly to the market value of the overall bond issuances held by large U.S. banks shown in Figure 1.