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Securitization and Credit Quality

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  • Alper Kara
  • David Marques-Ibanez
  • Steven Ongena

Abstract

Banks are usually better informed on the loans they originate than outside investors. As a result, securitized loans might be of lower credit quality than ? otherwise similar ? non-securitized loans. We assess the effect of securitization activity on credit quality employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, at issuance, banks do not select and securitize loans of lower credit quality. Following securitization, however, the credit quality of borrowers whose loans are securitized deteriorates by more than those in the control group. We find tentative evidence suggesting that poorer performance by securitized loans might be linked to banks? reduced monitoring incentives.

Suggested Citation

  • Alper Kara & David Marques-Ibanez & Steven Ongena, 2015. "Securitization and Credit Quality," International Finance Discussion Papers 1148, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1148
    DOI: 10.17016/IFDP.2015.1148
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    2. van der Plaat, Mark T., 2021. "How to Measure Securitization: A Structural Equation Approach," MPRA Paper 109735, University Library of Munich, Germany.
    3. Solomon Y. Deku & Alper Kara & Nodirbek Karimov, 2021. "Do investors value frequent issuers in securitization?," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1247-1282, November.
    4. Krahnen, Jan Pieter & Wilde, Christian, 2017. "Skin-in-the-game in ABS transactions: A critical review of policy options," SAFE White Paper Series 46, Leibniz Institute for Financial Research SAFE.
    5. Krahnen, Jan-Pieter & Wilde, Christian, 2022. "Skin-in-the-game in ABS transactions: A critical review of policy options," Journal of Financial Stability, Elsevier, vol. 60(C).
    6. Marques, Manuel O. & Pinto, João M., 2020. "A comparative analysis of ex ante credit spreads: Structured finance versus straight debt finance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    7. Arif, Ahmed, 2020. "Effects of securitization and covered bonds on bank stability," Research in International Business and Finance, Elsevier, vol. 53(C).
    8. Solomon Y. Deku & Alper Kara & Artur Semeyutin, 2021. "The predictive strength of MBS yield spreads during asset bubbles," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 111-142, January.
    9. Ugo Albertazzi & Margherita Bottero & Leonardo Gambacorta & Steven Ongena, 2016. "Asymmetric information and the securitization of SME loans," Temi di discussione (Economic working papers) 1091, Bank of Italy, Economic Research and International Relations Area.
    10. Marqués-Ibáñez, David, 2017. "Securitisation, credit risk and lending standards revisited," Research Bulletin, European Central Bank, vol. 32.
    11. Ihor Kravchuk, 2017. "Assets Securitization in European Financial Scope," Oblik i finansi, Institute of Accounting and Finance, issue 2, pages 91-98, June.
    12. Sascha Tobias Wengerek & Benjamin Hippert & André Uhde, 2019. "Risk allocation through securitization - Evidence from non-performing loans," Working Papers Dissertations 58, Paderborn University, Faculty of Business Administration and Economics.
    13. Fenner, Arved & Klein, Philipp & Mössinger, Carina, 2021. "Better be careful: The replenishment of ABS backed by SME loans," Discussion Papers 30/2021, Deutsche Bundesbank.
    14. Deku, Solomon Y. & Kara, Alper & Zhou, Yifan, 2019. "Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature," International Review of Financial Analysis, Elsevier, vol. 61(C), pages 245-254.

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    More about this item

    Keywords

    Securitization; syndicated loans; credit risks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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