Good Securitization, Bad Securitization
AbstractI 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 InfoPaper provided by Institute for Monetary and Economic Studies, Bank of Japan in its series IMES Discussion Paper Series with number 11-E-04.
Date of creation: Feb 2011
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banking; securitization; liquidity;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-BAN-2011-03-12 (Banking)
- NEP-CTA-2011-03-12 (Contract Theory & Applications)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Pagès, Henri, 2013.
"Bank monitoring incentives and optimal ABS,"
Journal of Financial Intermediation,
Elsevier, vol. 22(1), pages 30-54.
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