Asymmetric information and the securitization of SME loans

Using all loans granted to firms recorded in the Italian credit register, we estimate correlations between risk-transfer and default probabilities to gauge the severity of informational asymmetries in the loan securitization market. First, the analysis confirms the presence of information frictions in the SME loan securitisation market. Second, the unconditional quality of securitized loans remains significantly better than that of non-securitized ones, in line with the notion that markets anticipate the presence of information frictions and lead to a selection of loans which offsets the detrimental effects of asymmetric information. Third, using data for firms that maintain multiple bank relationships, we obtain indications of the relative importance played by two forms of information friction, adverse selection and moral hazard. While the former is widespread, the latter is present in weak relationships only, in line with the notion that such loans are characterised by a limited commitment to exert costly monitoring by the bank.