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Are covered bonds a substitute for mortgage-backed securities?

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  • 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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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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Keywords: Bonds ; Mortgage-backed securities;

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  1. Giovanni Dell’Ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, 03.
  2. R. Glenn Hubbard & Darius Palia, 1994. "Executive Pay and Performance: Evidence from the U.S. Banking Industry," NBER Working Papers 4704, National Bureau of Economic Research, Inc.
  3. Frank Packer & Ryan Stever & Christian Upper, 2007. "The covered bond market," BIS Quarterly Review, Bank for International Settlements, September.
  4. Wenying Jiangli & Matt Pritsker, 2008. "The impacts of securitization on U.S. bank holding companies," Proceedings 1097, Federal Reserve Bank of Chicago.
  5. 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.
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