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Securitization and risk: empirical evidence on US banks

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  • Hatice Uzun
  • Elizabeth Webb
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    Abstract

    Purpose – This paper aims to offer a comprehensive comparison of the characteristics between banks that securitize and banks that do not and to provide evidence of the capital arbitrage theory of securitization. Design/methodology/approach – First, the fundamental financial similarities and differences between banks that securitize assets and banks that do not participate in the securitization market are tested. Second, variables that help predict whether a bank securitizes assets are analyzed. Third, the determinants of securitization extent in banks that securitize assets are investigated – for general securitization extent and for specific type of asset securitized. Using a sample of 112 banks that securitize different assets, a matched sample of banks that do not securitize based on entity type and size is created. A quarterly panel data set of these banks dating back to 2001 is used. Findings – The results indicate that bank size is a significant determinant of whether a bank securitizes. Further, overall securitization extent is negatively related to the bank's capital ratio (in support of capital arbitrage theory), but this result is primarily driven by credit card securitization. Originality/value – Utilizing a unique data set of quarterly data from bank Call Reports; the panel data set is large relative to past studies. A matched sample approach was used to test fundamental financial similarities and differences between securitizing and non-securitizing banks. In addition to aggregated securitization, an examination was made of how different classes of assets affect the banks' risk-based capital ratios and test the capital arbitrage theory of securitization.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Risk Finance.

    Volume (Year): 8 (2007)
    Issue (Month): 1 (January)
    Pages: 11-23

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    Handle: RePEc:eme:jrfpps:v:8:y:2007:i:1:p:11-23

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    Related research

    Keywords: Arbitrage; Banks; Capital; Securities; United States of America;

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    Cited by:
    1. Clara Cardone Riportella & Reyes Samaniego Medina & Antonio Trujillo Ponce, 2009. "What do we know about banks securitisation? the spanish experience," Business Economics Working Papers wb093904, Universidad Carlos III, Departamento de Economía de la Empresa.
    2. DeYoung, Robert & Torna, Gökhan, 2013. "Nontraditional banking activities and bank failures during the financial crisis," Journal of Financial Intermediation, Elsevier, vol. 22(3), pages 397-421.
    3. Christian Calmès & Raymond Théoret, 2013. "Is the Canadian banking system really “stronger” than the U.S. one?," RePAd Working Paper Series UQO-DSA-wp022013, Département des sciences administratives, UQO.
    4. Uluc Aysun & Ralf Hepp, 2010. "Securitization and the Balance Sheet Channel of Monetary Transmission," Fordham Economics Discussion Paper Series dp2010-05, Fordham University, Department of Economics.
    5. Christian Calm¨¨s & Raymond Th¨¦oret, 2013. "Is the Canadian Banking System Really ¡°Stronger¡± than the U.S. One?," Review of Economics & Finance, Better Advances Press, Canada, vol. 3, pages 1-18, November.
    6. Mario Cerrato & Moorad Choudhry & John Crosby & John Olukuru, 2012. "Why do UK banks securitize?," Working Papers 2012_06, Business School - Economics, University of Glasgow.
    7. Cardone-Riportella, Clara & Samaniego-Medina, Reyes & Trujillo-Ponce, Antonio, 2010. "What drives bank securitisation? The Spanish experience," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2639-2651, November.
    8. Michalak, Tobias C. & Uhde, André, 2012. "Credit risk securitization and bank soundness in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(3), pages 272-285.
    9. Deming Wu & Jiawen Yang & Han Hong, 2011. "Securitization and Banks’ Equity Risk," Journal of Financial Services Research, Springer, vol. 39(3), pages 95-117, June.
    10. Chris Stewart & Benn Robertson & Alexandra Heath, 2013. "Trends in the Funding and Lending Behaviour of Australian Banks," RBA Research Discussion Papers rdp2013-15, Reserve Bank of Australia.
    11. Chira, Inga & Madura, Jeff & Viale, Ariel M., 2013. "Bank exposure to market fear," Journal of Financial Stability, Elsevier, vol. 9(4), pages 451-459.
    12. Battaglia, Francesca & Gallo, Angela, 2013. "Securitization and systemic risk: An empirical investigation on Italian banks over the financial crisis," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 274-286.
    13. Elizabeth W. Cooper, 2011. "Determinants of off-balance sheet usage in private banks," Studies in Economics and Finance, Emerald Group Publishing, vol. 28(4), pages 248-259, October.
    14. Akhigbe, Aigbe & Madura, Jeff & Marciniak, Marek, 2012. "Bank capital and exposure to the financial crisis," Journal of Economics and Business, Elsevier, vol. 64(5), pages 377-392.

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