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The impact of securitisation and structural changes of the Australian mortgage markets on bank pricing behaviour

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  • Benjamin Liu
  • Michael Skully

Abstract

This paper investigates the impact of securitisation and structural changes of the Australian mortgage market on bank pricing behaviour. Since the mid-1990s, securitisation has dramatically increased and, thus, intensified competition between banks and mortgage corporations (new entrants). To respond to the competition, banks largely reduced their mortgage interest rates. However, there is no study on what caused their price reductions. We present a simple model to explain the potential factors that may affect bank behaviour. This is the first examination of the issue from both the perspectives of cost effects and market structural changes by testing four major bank data. It finds that lender yield spreads are significantly related to bank market share, existing and new loan concentration indexes and securitisation, respectively. The findings further indicate that declined concentration and increased competition have significantly caused lender spread changes. The findings are consistent with both the securitisation literature (e.g., Gorton and Pennacchi, 1995; Kolari et al., 1998; Ambrose et al., 2004) and price concentration studies (e.g., Berger and Hannan, 1989).

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Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Banking, Accounting and Finance.

Volume (Year): 1 (2008)
Issue (Month): 2 ()
Pages: 149-167

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Handle: RePEc:ids:injbaf:v:1:y:2008:i:2:p:149-167

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Web page: http://www.inderscience.com/browse/index.php?journalID=277

Related research

Keywords: securitisation; competition; market structure; bank pricing behaviour; Australia; mortgage markets; mortgage interest rates; price reductions.;

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Cited by:
  1. Allen Huang & Benjamin Liu, 2009. "The Goods and Services Tax (GST) and Non-Bank Lender Mortgage Costs: Empirical Evidence," Discussion Papers in Finance finance:200915, Griffith University, Department of Accounting, Finance and Economics.
  2. Allen Huang & Benjamin Liu, 2009. "The Goods and Services Tax (GST) and Bank Mortgage Costs: Empirical Evidence," Discussion Papers in Finance finance:200914, Griffith University, Department of Accounting, Finance and Economics.
  3. Allen Huang & Benjamin Liu, 2013. "The GST and mortgage costs: Australian evidence," Discussion Papers in Finance finance:201302, Griffith University, Department of Accounting, Finance and Economics.
  4. Benjamin Liu & Donghui Li & Eduardo Roca, 2009. "What Determine Mortgage Yield Spreads in Australia? Credit Criteria, Funding Channels and the Market Condition," Discussion Papers in Finance finance:200901, Griffith University, Department of Accounting, Finance and Economics.

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