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Asset portfolio securitizations and cyclicality of regulatory capital

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  • Lützenkirchen, Kristina
  • Rösch, Daniel
  • Scheule, Harald

Abstract

This paper analyzes the level and cyclicality of regulatory bank capital for asset portfolio securitizations in relation to the cyclicality of capital requirements for the underlying loan portfolio as under Basel II/III. We find that the cyclicality of capital requirements is higher for (i) asset portfolio securitizations relative to primary loan portfolios, (ii) Ratings Based Approach (RBA) relative to the Supervisory Formula Approach, (iii) given the RBA for a point-in-time rating methodology relative to a rate-and-forget rating methodology, and (iv) under the passive reinvestment rule relative to alternative rules. Capital requirements of the individual tranches reveal that the volatility of aggregated capital charges for the securitized portfolio is triggered by the most senior tranches. This is due to the fact that senior tranches are more sensitive to the macroeconomy. An empirical analysis provides evidence that current credit ratings are time-constant and that economic losses for securitizations have exceeded the required capital in the recent financial crisis.

Suggested Citation

  • Lützenkirchen, Kristina & Rösch, Daniel & Scheule, Harald, 2014. "Asset portfolio securitizations and cyclicality of regulatory capital," European Journal of Operational Research, Elsevier, vol. 237(1), pages 289-302.
  • Handle: RePEc:eee:ejores:v:237:y:2014:i:1:p:289-302
    DOI: 10.1016/j.ejor.2014.01.011
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    References listed on IDEAS

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    1. repec:kap:rqfnac:v:52:y:2019:i:2:d:10.1007_s11156-018-0712-y is not listed on IDEAS
    2. Wolter, Marcus & Rösch, Daniel, 2014. "Cure events in default prediction," European Journal of Operational Research, Elsevier, vol. 238(3), pages 846-857.
    3. Mamatzakis, Emmanuel & Bagntasarian, Anna, 2019. "The nexus between underlying dynamics of bank capital buffer and performance," MPRA Paper 92961, University Library of Munich, Germany.
    4. Anachit Bagntasarian & Emmanuel Mamatzakis, 2019. "Testing for the underlying dynamics of bank capital buffer and performance nexus," Review of Quantitative Finance and Accounting, Springer, vol. 52(2), pages 347-380, February.
    5. repec:eee:finsta:v:36:y:2018:i:c:p:114-129 is not listed on IDEAS

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