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Good Securitization, Bad Securitization

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  • Guillaume Plantin

    (Toulouse School of Economics and CEPR (E-mail: guillaume.plantin@tse-fr.eu))

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    Abstract

    I use a simple banking model to study the circumstances under which excessive and inefficient securitization may occur. I first stress that increasing securitization rates that reduce banks' incentives to screen borrowers and thus lead to more defaults need not be inefficient. This may be an efficient response to higher gains from trade between banks and fixed-income markets in the presence of bank moral hazard. I then argue that if reaping such higher gains from trade induces a reduction in the informational efficiency of the securitization market, then there is room for excessive securitization. The model points at increased transparency and informational efficiency of the securitization market as key improvements for the future of the banking system.

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    Bibliographic Info

    Paper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-04.

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    Date of creation: Feb 2011
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    Handle: RePEc:ime:imedps:11-e-04

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    Related research

    Keywords: banking; securitization; liquidity;

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Optimal securitization
      by Economic Logician in Economic Logic on 2011-04-12 14:06:00
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    Cited by:
    1. Pagès, Henri, 2013. "Bank monitoring incentives and optimal ABS," Journal of Financial Intermediation, Elsevier, vol. 22(1), pages 30-54.

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