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Securitized Products, Financial Regulation, and Systemic Risk

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  • Mariko Fujii

    (Asian Development Bank Institute)

Abstract

It is widely believed that the practice of securitization is one of the causes that led to the 200708 financial crisis. In this paper, I show that securitized products such as collateralized debt obligations (CDO) are particularly vulnerable to systematic risk and tend to show higher tail risk. These characteristics, in turn, are closely associated with joint failures and systemic risk. In order to achieve greater stability of the financial system, it is important to prevent the recurrence of the collapse of specific markets as this may lead to the collapse of other components of the financial system. From this perspective, the financial regulations that should be applied to these problematic financial products and their relation to possible systemic risks are discussed.

Suggested Citation

  • Mariko Fujii, 2010. "Securitized Products, Financial Regulation, and Systemic Risk," Finance Working Papers 23010, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:financ:23010
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    File URL: http://www.eaber.org/node/23010
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    References listed on IDEAS

    as
    1. Nadauld, Taylor D. & Sherlund, Shane M., 2009. "The Role of the Securitization Process in the Expansion of Subprime Credit," Working Paper Series 2009-9, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    2. Douglas W. Diamond & Raghuram G. Rajan, 2009. "The Credit Crisis: Conjectures about Causes and Remedies," American Economic Review, American Economic Association, vol. 99(2), pages 606-610, May.
    3. Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
    4. Francis A. Longstaff & Arvind Rajan, 2008. "An Empirical Analysis of the Pricing of Collateralized Debt Obligations," Journal of Finance, American Finance Association, vol. 63(2), pages 529-563, April.
    5. Joshua Aizenman, 2009. "Financial Crisis and the Paradox of Under- and Over-Regulation," NBER Working Papers 15018, National Bureau of Economic Research, Inc.
    6. Benmelech, Efraim & Dlugosz, Jennifer, 2009. "The alchemy of CDO credit ratings," Journal of Monetary Economics, Elsevier, vol. 56(5), pages 617-634, July.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Morgan, Peter J. & Lamberte , Mario, 2012. "Strengthening Financial Infrastructure," ADBI Working Papers 345, Asian Development Bank Institute.
    2. Bell, Peter N, 2014. "Farmland Ownership Restrictions: Between a Rock and a Hard Place," MPRA Paper 53033, University Library of Munich, Germany.
    3. Robert E. Prasch & Thierry Warin, 2012. "Moral Hazard and the Mounting of a Crisis: A U.S. Narrative," CIRANO For discussion... 2012dt-03, CIRANO.

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    More about this item

    Keywords

    secirotozation; CDO; financial crisis; financial regulations; systemic risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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