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Competition, securitization, and efficiency in US banks

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  • Bayeh, Antonio
  • Bitar, Mohammad
  • Burlacu, Radu
  • Walker, Thomas

Abstract

This paper investigates the different effects of competition and securitization on US bank efficiency between 2001 and 2019. Using Propensity Score Matching (PSM) and a two-step dynamic Generalized Method of Moments (GMM) estimation, we find that higher securitization increases banks’ cost efficiency scores. When banks are under competitive pressure, the fixed-effects and GMM models show that securitization is positively associated with the cost efficiency of banks, while it mitigates their screening and monitoring incentives. Robust to a battery of alternative tests, our findings introduce bank efficiency as a new mechanism explaining how banks that securitize loans insignificantly invest in screening and monitoring their potentially risky borrowers. In order to promote sustainable loan quality, this paper underlines the importance of improved regulation in highly competitive markets where loan securitization is more common.

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  • Bayeh, Antonio & Bitar, Mohammad & Burlacu, Radu & Walker, Thomas, 2021. "Competition, securitization, and efficiency in US banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 553-576.
    • Handle: RePEc:eee:quaeco:v:80:y:2021:i:c:p:553-576
    DOI: 10.1016/j.qref.2021.04.004
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    10. Chen, Zhizhen & Liu, Frank Hong & Opong, Kwaku & Zhou, Mingming, 2017. "Short-term safety or long-term failure? Empirical evidence of the impact of securitization on bank risk," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 48-74.
    11. Farruggio, Christian & Uhde, André, 2015. "Determinants of loan securitization in European banking," Journal of Banking & Finance, Elsevier, vol. 56(C), pages 12-27.
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    More about this item

    Keywords

    Securitization; Competition; Bank efficiency; Screening and monitoring; Bank regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K29 - Law and Economics - - Regulation and Business Law - - - Other

    Statistics

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