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Securitization, risk-transferring and financial instability: The case of Spain

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Listed author(s):
  • Carbó-Valverde, Santiago
  • Marques-Ibanez, David
  • Rodríguez-Fernández, Francisco

Abstract

The 2007–2010 financial crisis has hit a variety of countries asymmetrically. The case of Spain is particularly illustrative as it exemplifies in a vivid manner most of the core issues largely responsible for the crisis. This country experienced a pronounced housing bubble partly funded via spectacular developments in its securitization markets leading to looser credit standards and subsequent financial stability problems. We analyze the sequential deterioration of credit in Spain considering rating changes in securitized deals. Using a sample of 20,286 observations on securities and rating changes from 2000Q1 to 2010Q1 we build a model in which loan growth, on balance-sheet credit quality and rating changes are estimated simultaneously. Our results suggest that loan growth significantly affects on balance-sheet loan performance with a lag of at least two years. Additionally, loan performance is found to explain rating changes with a lag of four quarters. Importantly, bank characteristics (in particular, observed solvency, cash-flow generation and cost efficiency) also affect ratings considerably. Additionally, these other bank characteristics seem to a higher weight in the rating changes of securities issued by savings banks as compared with commercial banks.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261560611001574
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 31 (2012)
Issue (Month): 1 ()
Pages: 80-101

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Handle: RePEc:eee:jimfin:v:31:y:2012:i:1:p:80-101
DOI: 10.1016/j.jimonfin.2011.11.004
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

Keywords: Securitization; Lending; Risk; Financial instability;

Find related papers by JEL classification:

  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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Cited by:

  1. Banal-Estanol, Albert & Benito, Enrique & Khametshin, Dmitry, 2017. "Asset encumbrance and bank risk: First evidence from public disclosures in Europe," CEPR Discussion Papers 12168, C.E.P.R. Discussion Papers.
  2. Vasiliki Makri, 2016. "Towards an Investigation of Credit Risk Determinants in Eurozone Countries," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 15(1), pages 27-57, March.
  3. Mª Pilar García-Alcober & Manuel Illueca & Diego Prior & Emili Tortosa-Ausina, 2016. "Risk-taking behavior, earnings quality, and performance in Spanish banking: A profit frontier approach," Working Papers 2016/19, Economics Department, Universitat Jaume I, Castellón (Spain).
  4. Chen, Zhizhen & Liu, Frank Hong & Opong, Kwaku & Zhou, Mingming, 2017. "Short-term safety or long-term failure? Empirical evidence of the impact of securitization on bank risk," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 48-74.
  5. Vithessonthi, Chaiporn, 2014. "Financial markets development and bank risk: Experience from Thailand during 1990–2012," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 67-88.
  6. Dwyer, Gerald P. & Lothian, James R., 2012. "International and historical dimensions of the financial crisis of 2007 and 2008," Journal of International Money and Finance, Elsevier, vol. 31(1), pages 1-9.
  7. Rouse, Marybeth & Verhoef, y Grietjie, 2017. "Mobile banking in Sub-Saharan Africa: setting the way towards financial development," MPRA Paper 78006, University Library of Munich, Germany.
  8. Fischer, Stanley, 2017. "Housing and Financial Stability : a speech at the DNB-Riksbank Macroprudential Conference Series, Amsterdam, Netherlands, June 20, 2017," Speech 956, Board of Governors of the Federal Reserve System (U.S.).

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