Effect of Securitization on the Bank’s Equity Risk in the U.S
This paper examines the relationship between the effect of securitization and the equity risk for bank holding companies in the United States from Q2:2001 to Q4:2008. Securitization markets in the U.S. expanded significantly in the early 2000s but have declined since 2007. This paper investigates four types of loans, namely, mortgage, consumer, commercial, and “other” loans (loans secured by real estate other than mortgage loans). When all types of loans are considered as a group, the effect of securitization (the net effect of increasing off-balance sheet loans and reducing on-balance sheet loans) is insignificant in relation to the banks’ equity risk. As a result, the banks use securitization as a financing source to fund new loans rather than as a risk reduction tool. The analysis of each type of loan indicates that the effect of the securitization of mortgage, consumer, and commercial loans is not significantly related to the banks’ equity risk; however, the effect of the securitization of “other” loans is statistically significant in raising the banks’ equity risk. The result shows that the banks still retain risk from securitization and that they use securitization as a financing source. Furthermore, during the subprime crisis, banks that securitized mortgage loans were exposed to risk from retained “credit-enhancing interest-only strips” rather than from the effect of securitization itself.
Volume (Year): 19 (2012)
Issue (Month): 1 (June)
|Contact details of provider:|| Phone: (662) 579-1544|
Fax: (662) 579-957
Web page: http://journal.eco.ku.ac.th/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- G. Dionne & T. M. Harchaoui, 2002. "Banks’ Capital, Securitization and Credit Risk : An Empirical Evidence for Canada," THEMA Working Papers 2002-33, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- Malekan, Sara & Dionne, Georges, 2014.
"Securitization and optimal retention under moral hazard,"
Journal of Mathematical Economics,
Elsevier, vol. 55(C), pages 74-85.
- Sara Malekan & Georges Dionne, 2012. "Securitization and Optimal Retention under Moral Hazard," Cahiers de recherche 1221, CIRPEE.
- Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013.
"Securitization without risk transfer,"
Journal of Financial Economics,
Elsevier, vol. 107(3), pages 515-536.
- Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010. "Securitization without risk transfer," NBER Working Papers 15730, National Bureau of Economic Research, Inc.
- Acharya, Viral V & Schnabl, Philipp & Suarez, Gustavo, 2012. "Securitization Without Risk Transfer," CEPR Discussion Papers 8769, C.E.P.R. Discussion Papers.
- 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.
- Charles W. Calomiris & Joseph R. Mason, 2003.
"Credit card securitization and regulatory arbitrage,"
03-7, Federal Reserve Bank of Philadelphia.
- Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer, vol. 26(1), pages 5-27, August.
- Simon Wolfe, 2000. "Structural effects of asset-backed securitization," The European Journal of Finance, Taylor & Francis Journals, vol. 6(4), pages 353-369.
- Deming Wu & Jiawen Yang & Han Hong, 2011. "Securitization and Banks’ Equity Risk," Journal of Financial Services Research, Springer, vol. 39(3), pages 95-117, June.
When requesting a correction, please mention this item's handle: RePEc:aej:apecjn:v:19:y:2012:i:1:p:68-86. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chatrat Hemmawat)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.