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Lending relationships and credit rationing: the impact of securitization

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  • Carbó Valverde, Santiago
  • Degryse, Hans
  • Rodriguez-Fernandez, Francisco

Abstract

Banks have been heavily involved in securitization. We study whether the involvedness of a firm’s main bank into different types of securitization activity -- asset backed securities (ABS) and covered bonds -- influences credit supply before and during the 2007-8 financial crisis. Both types of securitization allow the bank to generate liquidity. To the extent that ABS activity lowers lending standards in normal times, banks with more ABS activity may reduce their lending more in crisis times as an ex-post effect of a previously higher risk adoption. Employing a disequilibrium model to identify credit rationing, we find that a longer relationship with a firm’s main bank considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firm’s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firm’s main bank aggravates these firm’s credit rationing in crisis periods.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9138.

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Date of creation: Sep 2012
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Handle: RePEc:cpr:ceprdp:9138

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Keywords: financial crisis; lending relationships; securitization;

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Cited by:
  1. Emanuele Brancati, 2013. "The Real Side of the Financial Crisis: Banks' Exposure, Flight to Quality and Firms' Investment Rate," CEIS Research Paper 302, Tor Vergata University, CEIS, revised 18 Dec 2013.
  2. Bedendo, Mascia & Bruno, Brunella, 2012. "Credit risk transfer in U.S. commercial banks: What changed during the 2007–2009 crisis?," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3260-3273.

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