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Did Securitization Lead to Riskier Corporate Lending?

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Abstract

There?s ample evidence that securitization led mortgage lenders to take more risk, thereby contributing to a large increase in mortgage delinquencies during the financial crisis. In this post, I discuss evidence from a recent research study I undertook with Vitaly Bord suggesting that securitization also led to riskier corporate lending. We show that during the boom years of securitization, corporate loans that banks securitized at loan origination underperformed similar, unsecuritized loans originated by the same banks. Additionally, we report evidence suggesting that the performance gap reflects looser underwriting standards applied by banks to loans they securitize.

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  • João A. C. Santos, 2013. "Did Securitization Lead to Riskier Corporate Lending?," Liberty Street Economics 20130204, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86854
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services

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