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Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Acceptance Rates

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  • Elena Loutskina
  • Philip E. Strahan
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    Abstract

    This paper shows that securitization reduces the influence of bank financial condition on loan supply. Low-cost funding and increased balance-sheet liquidity raise bank willingness to approve mortgages that are hard to sell (jumbo mortgages), while having no effect on their willingness to approve mortgages easy to sell (non-jumbos). Thus, the increasing depth of the mortgage secondary market fostered by securitization has reduced the impact of local funding shocks on credit supply. By extension, securitization has weakened the link from bank funding conditions to credit supply in aggregate, thereby mitigating the real effects of monetary policy.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11983.

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    Date of creation: Jan 2006
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    Publication status: published as Loutskina Elena and Philip E. Strahan. "SECURITIZATION AND THE DECLINING IMPACT OF BANK FINANCIAL CONDITION ON LOAN SUPPLY: EVIDENCE FROM MORTGAGE ORIGINATIONS." Journal of Finance 64, 2 (2009): 861-922.
    Handle: RePEc:nbr:nberwo:11983

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    Cited by:
    1. Leonardo Gambacorta & Paolo Emilio Mistrulli, 2011. "Bank heterogeneity and interest rate setting: What lessons have we learned since Lehman Brothers?," BIS Working Papers 359, Bank for International Settlements.
    2. Hänsel, Dennis N. & Bannier, Christina E., 2008. "Determinants of European banks' engagement in loan securitization," Discussion Paper Series 2: Banking and Financial Studies 2008,10, Deutsche Bundesbank, Research Centre.
    3. Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2007. "Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market," Working Papers, Princeton University, Department of Economics, Center for Economic Policy Studies. 61, Princeton University, Department of Economics, Center for Economic Policy Studies..
    4. Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2009. "Bank risk and monetary policy," Working Paper Series, European Central Bank 1075, European Central Bank.
    5. Silva Buston, C.F., 2013. "Active Risk Management and Banking Stability," Discussion Paper, Tilburg University, Center for Economic Research 2013-068, Tilburg University, Center for Economic Research.
    6. Jose M. Berrospide & Rochelle M. Edge, 2010. "The effects of bank capital on lending: What do we know, and what does it mean?," CAMA Working Papers 2010-26, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    7. Norden, Lars & Silva Buston, Consuelo & Wagner, Wolf, 2014. "Financial innovation and bank behavior: Evidence from credit markets," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 43(C), pages 130-145.
    8. Schaeck, K. & Silva Buston, C.F. & Wagner, W.B., 2013. "The Two Faces of Interbank Correlation," Discussion Paper, Tilburg University, Center for Economic Research 2013-077, Tilburg University, Center for Economic Research.
    9. Evan Gatev & Philip Strahan, 2008. "Liquidity Risk and Syndicate Structure," NBER Working Papers 13802, National Bureau of Economic Research, Inc.
    10. Masami Imai, 2008. "Crowding-Out Effects of a Government-Owned Depository Institution: Evidence from a Natural Experiment in Japan," Wesleyan Economics Working Papers, Wesleyan University, Department of Economics 2008-003, Wesleyan University, Department of Economics.
    11. Clara Cardone Riportella & Reyes Samaniego Medina & Antonio Trujillo Ponce, 2009. "What do we know about banks securitisation? the spanish experience," Business Economics Working Papers, Universidad Carlos III, Departamento de Economía de la Empresa wb093904, Universidad Carlos III, Departamento de Economía de la Empresa.

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