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Securitization and the balance sheet channel of monetary transmission

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  • Uluc Aysun

    (University of Connecticut)

  • Melanie Guldi

    (Mount Holyoke College)

  • Ralf Hepp

    (Fordham University)

Abstract

This paper shows that the balance sheet channel of monetary transmission works mainly through U.S. bank holding companies that securitize their assets. This finding is different, in spirit, from the widely-found negative relationship between financial development and the strength of the lending channel of monetary transmission. Focusing on the balance sheet channel, and using bank-level observations, we find that securitized banks are more sensitive to borrowers' balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing bank holding companies. The optimality conditions from a simple partial equilibrium framework suggest that the positive effects of securitization on policy effectiveness could be due to the high sensitivity of security prices to policy rates.

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Bibliographic Info

Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2010-18.

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Length: 33 pages
Date of creation: Jul 2010
Date of revision:
Handle: RePEc:uct:uconnp:2010-18

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Keywords: balance sheet channel; banks; bank holding companies; securitization.;

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Cited by:
  1. Perera, Anil & Ralston, Deborah & Wickramanayake, J., 2014. "Impact of off-balance sheet banking on the bank lending channel of monetary transmission: Evidence from South Asia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 195-216.
  2. Uluc Aysun, 2013. "Bank size and macroeconomic shock transmission: Are there economic volatility gains from shrinking large, too big to fail banks?," Working Papers 2013-02, University of Central Florida, Department of Economics.
  3. Delis, Manthos D. & Kouretas, Georgios P. & Tsoumas, Chris, 2014. "Anxious periods and bank lending," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 1-13.

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