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Securitization and the balance sheet channel of monetary transmission

  • Aysun, Uluc
  • Hepp, Ralf

This paper shows that the balance sheet channel of monetary transmission is stronger for US banks 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 securitizing banks are more sensitive to borrowers' balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing banks. 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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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 8 (August)
Pages: 2111-2122

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:8:p:2111-2122
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