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Are covered bonds a substitute for mortgage-backed securities?

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Author Info

  • Santiago Carbó-Valverde
  • Francisco Rodríguez Fernández
  • Richard J. Rosen

Abstract

Covered bonds and mortgage-backed securities both allow mortgages to be financed with duration-matched bonds. Given the problems in the MBS market during the financial crisis, some suggest that covered bonds might be a substitute for MBS. We examine the use of covered bonds and MBS in the U.S. and Europe, finding that the two are used for different purposes. Covered bonds are used more to increase liquidity than are MBS. MBS are more often used in ways consistent with exploiting some kinds of agency problems.

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File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/2011/wp2011_14.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-2011-14.

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Date of creation: 2011
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Handle: RePEc:fip:fedhwp:wp-2011-14

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Related research

Keywords: Bonds ; Mortgage-backed securities;

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  1. Dell’Ariccia, G. & Igan, D. & Laeven, L., 2009. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Discussion Paper 2009-46 S, Tilburg University, Center for Economic Research.
  2. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
  3. Frank Packer & Ryan Stever & Christian Upper, 2007. "The covered bond market," BIS Quarterly Review, Bank for International Settlements, September.
  4. Hubbard, R. Glenn & Palia, Darius, 1995. "Executive pay and performance Evidence from the U.S. banking industry," Journal of Financial Economics, Elsevier, vol. 39(1), pages 105-130, September.
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