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A Model for Bank’s Optimal Asset Securitization Program

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Author Info

  • Masahiko Egami
  • Kaoru Hosono

Abstract

We propose a framework to examine banks’ asset securitization program. It provides a comprehensive view that explains various separate findings and claims in the literature. We derive optimal timing and quantity of banks’ asset securitization by explicitly incorporating stochastic asset returns and leverage constraints. We also quantify how much additional value can be created by asset securitization program, which gives some insights into why banks securitize assets. We further conduct some comparative analysis by varying the asset quality and economic environment, obtaining results that can account for the actual securitization trends including the bubble and crisis periods. Our empirical analysis using a Japanese data set also provide evidences that are consistent with our theoretical implications.

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File URL: http://www.econ.kyoto-u.ac.jp/projectcenter/Paper/e-10-003.pdf
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Bibliographic Info

Paper provided by Graduate School of Economics Project Center, Kyoto University in its series Discussion papers with number e-10-003.

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Length: 17 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:kue:dpaper:e-10-003

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Web page: http://www.econ.kyoto-u.ac.jp/projectcenter/
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Related research

Keywords: Asset securitization program; Leverage; Impulse control; Bubble and crisis;

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References

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  1. Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
  2. Shleifer, Andrei & Vishny, Robert W, 1992. " Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-66, September.
  3. Pennacchi, George G, 1988. " Loan Sales and the Cost of Bank Capital," Journal of Finance, American Finance Association, vol. 43(2), pages 375-96, June.
  4. James, Christopher, 1988. "The use of loan sales and standby letters of credit by commercial banks," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 395-422.
  5. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
  6. Boot, Arnoud W A & Thakor, Anjan V, 1993. " Security Design," Journal of Finance, American Finance Association, vol. 48(4), pages 1349-78, September.
  7. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
  8. Steven A. Sharpe, 1989. "Asymmetric information, bank lending, and implicit contracts: a stylized model of customer relationships," Finance and Economics Discussion Series 70, Board of Governors of the Federal Reserve System (U.S.).
  9. Greenbaum, Stuart I. & Thakor, Anjan V., 1987. "Bank funding modes : Securitization versus deposits," Journal of Banking & Finance, Elsevier, vol. 11(3), pages 379-401, September.
  10. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and leverage," Staff Reports 328, Federal Reserve Bank of New York.
  11. Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer, vol. 28(1), pages 113-133, October.
  12. Keys, Benjamin J. & Mukherjee, Tanmoy & Seru, Amit & Vig, Vikrant, 2009. "Financial regulation and securitization: Evidence from subprime loans," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 700-720, July.
  13. Lockwood, Larry J. & Rutherford, Ronald C. & Herrera, Martin J., 1996. "Wealth effects of asset securitization," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 151-164, January.
  14. Riddiough, Timothy J., 1997. "Optimal Design and Governance of Asset-Backed Securities," Journal of Financial Intermediation, Elsevier, vol. 6(2), pages 121-152, April.
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