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The role of securitization in bank financial management

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  • Elena Loutskina

Abstract

This paper studies the effect of securitization on bank lending. I propose a new index of ?securitizability of a bank portfolio? that can be thought of as a weighted average of the potential to securitize loans of a given type, where the weights reflect the composition of a bank loan portfolio. I use this new index to show that securitization makes bank lending less sensitive to cost of fund shocks because it provides banks with an additional source of funding. Securitization thus weakens the link from monetary policy to bank lending activity. Furthermore, by allowing banks to convert illiquid loans into liquid funds, securitization reduces banks? holdings of liquid securities and increases their loan portfolios.

Suggested Citation

  • Elena Loutskina, 2006. "The role of securitization in bank financial management," Proceedings 1025, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:1025
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    Keywords

    Asset-backed financing; Bank liquidity;

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