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Securitization, bank lending and credit quality: the case of Spain

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Listed:
  • Marqués-Ibáñez, David
  • Carbó-Valverde, Santiago
  • Rodríguez Fernández, Francisco

Abstract

While the 2007-2010 financial crisis has hit a variety of countries asymmetrically, the case of Spain is particularly illustrative: 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 this country considering rating changes in individual securitized deals and on balance sheet bank conditions. 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 balancesheet 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 lead 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 have a higher weight in the rating changes of securities issued by savings banks as compared to those issued by commercial banks. JEL Classification: G21, G12

Suggested Citation

  • Marqués-Ibáñez, David & Carbó-Valverde, Santiago & Rodríguez Fernández, Francisco, 2011. "Securitization, bank lending and credit quality: the case of Spain," Working Paper Series 1329, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20111329
    Note: 328790
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1329.pdf
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    References listed on IDEAS

    as
    1. Reinhart, Carmen & Rogoff, Kenneth, 2009. "This Time It’s Different: Eight Centuries of Financial Folly-Preface," MPRA Paper 17451, University Library of Munich, Germany.
    2. Giovanni Dell’ariccia & Deniz Igan & Luc Laeven, 2012. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 367-384, March.
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    Cited by:

    1. Taipalus, Katja, 2012. "Detecting asset price bubbles with time-series methods," Scientific Monographs, Bank of Finland, number 2012_047.
    2. Kraemer-Eis, Helmut & Lang, Frank & Gvetadze, Salome, 2013. "European Small Business Finance Outlook: December 2013," EIF Working Paper Series 2013/20, European Investment Fund (EIF).
    3. Marshall, Andrew & McCann, Laura & McColgan, Patrick, 2019. "The market reaction to debt announcements: UK evidence surrounding the global financial crisis," The British Accounting Review, Elsevier, vol. 51(1), pages 92-109.
    4. Lin, Justin Yifu & Treichel, Volker, 2012. "The crisis in the Euro zone : did the euro contribute to the evolution of the crisis ?," Policy Research Working Paper Series 6127, The World Bank.

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    More about this item

    Keywords

    financial instability; lending; risk; securitization;
    All these keywords.

    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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