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Why do banks securitise their assets? Bank-level evidence from over one hundred countries in the pre-crisis period

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  • Fabio Panetta

    (Bank of Italy)

  • Alberto Franco Pozzolo

    (University of Molise)

Abstract

We investigate the causes and consequences of securitisations using a large data set of banks from over 100 world countries between 1991 and 2007, when the financial crisis caused the market to collapse. Our results show that banks were more likely to securitise their assets when they faced binding capital requirements and when the direct and indirect costs of these operations were lower (e.g., administrative expenses or the loss implied in the sale of opaque assets in an imperfect information environment). We also find evidence that banks securitised their assets to contain credit risk and reduce the exposure to liquidity shocks. The ex-post effects of securitisations are consistent with these ex-ante determinants. After the securitisation, banks improved their capital ratios and did not increase their riskiness. More important, they increased their credit supply. These results suggest that if properly used, these techniques can provide additional flexibility in managing banks’ activities and risk, and can foster credit supply. But, as the crisis has made well clear, provisions must be taken to avoid that some banks may use these new techniques in a way that increases individual and especially systemic risk.

Suggested Citation

  • Fabio Panetta & Alberto Franco Pozzolo, 2018. "Why do banks securitise their assets? Bank-level evidence from over one hundred countries in the pre-crisis period," Temi di discussione (Economic working papers) 1183, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_1183_18
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    More about this item

    Keywords

    credit risk transfer; securitisation; financial derivatives;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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