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Securitization without risk transfer

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  • Viral V. Acharya
  • Philipp Schnabl
  • Gustavo Suarez

Abstract

We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis, asset-backed commercial paper spreads increased and issuance fell, especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate, rather than disperse, financial risks in the banking sector while reducing their capital requirements.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15730.

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Date of creation: Feb 2010
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Handle: RePEc:nbr:nberwo:15730

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Cited by:
  1. Edward Kane, 2010. "Redefining and Containing Systemic Risk," Atlantic Economic Journal, International Atlantic Economic Society, vol. 38(3), pages 251-264, September.
  2. Acharya, Viral V., 2012. "The Dodd-Frank Act and Basel III: Intentions, Unintended Consequences, and Lessons for Emerging Markets," ADBI Working Papers 392, Asian Development Bank Institute.
  3. Tobias Adrian & Daniel Covitz & Nellie J. Liang, 2013. "Financial stability monitoring," Staff Reports 601, Federal Reserve Bank of New York.
  4. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow banking: a review of the literature," Staff Reports 580, Federal Reserve Bank of New York.
  5. Thomas F. Cosimano & Dalia Hakura, 2011. "Bank Behavior in Response to Basel III: A Cross-Country Analysis," IMF Working Papers 11/119, International Monetary Fund.
  6. Li, Zhe & Sun, Jianfei, 2011. "Bank competition, securitization and risky investment," MPRA Paper 34173, University Library of Munich, Germany.
  7. Markus K. Brunnermeier & Martin Oehmke, 2012. "Bubbles, Financial Crises, and Systemic Risk," NBER Working Papers 18398, National Bureau of Economic Research, Inc.

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