IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/15730.html
   My bibliography  Save this paper

Securitization without risk transfer

Author

Listed:
  • Viral V. Acharya
  • Philipp Schnabl
  • Gustavo Suarez

Abstract

We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis, asset-backed commercial paper spreads increased and issuance fell, especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate, rather than disperse, financial risks in the banking sector while reducing their capital requirements.

Suggested Citation

  • Viral V. Acharya & Philipp Schnabl & Gustavo Suarez, 2010. "Securitization without risk transfer," NBER Working Papers 15730, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15730
    Note: AP CF
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w15730.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Asli Demirguc-Kunt & Enrica Detragiache & Ouarda Merrouche, 2013. "Bank Capital: Lessons from the Financial Crisis," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(6), pages 1147-1164, September.
    2. Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2013. "Shadow banking," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-16.
      • Tobias Adrian & Adam B. Ashcraft & Hayley Boesky & Zoltan Pozsar, 2010. "Shadow banking," Staff Reports 458, Federal Reserve Bank of New York.
    3. Gary B. Gorton & Nicholas S. Souleles, 2007. "Special Purpose Vehicles and Securitization," NBER Chapters, in: The Risks of Financial Institutions, pages 549-597, National Bureau of Economic Research, Inc.
    4. Carlos Arteta & Mark Carey & Ricardo Correa & Jason Kotter, 2020. "Revenge of the Steamroller: ABCP as a Window on Risk Choices," Review of Finance, European Finance Association, vol. 24(3), pages 497-528.
    5. Douglas W. Diamond & Raghuram G. Rajan, 2000. "A Theory of Bank Capital," Journal of Finance, American Finance Association, vol. 55(6), pages 2431-2465, December.
    6. Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
    7. Anil K. Kashyap & Raghuram Rajan & Jeremy C. Stein, 2002. "Banks as Liquidity Providers: An Explanation for the Coexistence of Lending and Deposit‐taking," Journal of Finance, American Finance Association, vol. 57(1), pages 33-73, February.
    8. Pennacchi, George, 2006. "Deposit insurance, bank regulation, and financial system risks," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 1-30, January.
    9. Gordy, Michael B., 2003. "A risk-factor model foundation for ratings-based bank capital rules," Journal of Financial Intermediation, Elsevier, vol. 12(3), pages 199-232, July.
    10. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    11. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(1), pages 5-27, August.
    12. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    13. Arturo Estrella & Sangkyun Park & Stavros Peristiani, 2000. "Capital ratios as predictors of bank failure," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 33-52.
    14. Beltratti, Andrea & Stulz, Rene M., 2009. "Why Did Some Banks Perform Better during the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation," Working Paper Series 2009-12, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    15. Joshua D. Coval & Jakub W. Jurek & Erik Stafford, 2009. "Economic Catastrophe Bonds," American Economic Review, American Economic Association, vol. 99(3), pages 628-666, June.
    16. Carey, Mark & Stulz, René M. (ed.), 2007. "The Risks of Financial Institutions," National Bureau of Economic Research Books, University of Chicago Press, number 9780226092850.
    17. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
    18. Evan Gatev & Philip E. Strahan, 2006. "Banks' Advantage in Hedging Liquidity Risk: Theory and Evidence from the Commercial Paper Market," Journal of Finance, American Finance Association, vol. 61(2), pages 867-892, April.
    19. Marcin Kacperczyk & Philipp Schnabl, 2010. "When Safe Proved Risky: Commercial Paper during the Financial Crisis of 2007-2009," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 29-50, Winter.
    20. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    21. Charles W. Calomiris, 2009. "Financial Innovation, Regulation, and Reform," Cato Journal, Cato Journal, Cato Institute, vol. 29(1), pages 65-91, Winter.
    22. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hui Deng & Yu Fu, 2020. "A Heterogeneity Analysis on SPV Investment of Chinese Banks," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-10.
    2. Viral V. Acharya & Philipp Schnabl, 2010. "Do Global Banks Spread Global Imbalances? The Case of Asset-Backed Commercial Paper During the Financial Crisis of 2007-09," NBER Working Papers 16079, National Bureau of Economic Research, Inc.
    3. Shleifer, Andrei & Vishny, Robert W., 2010. "Unstable banking," Journal of Financial Economics, Elsevier, vol. 97(3), pages 306-318, September.
    4. Acharya, Viral & Mora, Nada, 2011. "Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis," CEPR Discussion Papers 8706, C.E.P.R. Discussion Papers.
    5. Angela Maddaloni & Jose-Luis Peydro, 2011. "Bank Risk-taking, Securitization, Supervision, and Low Interest Rates: Evidence from the Euro-area and the U.S. Lending Standards," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 2121-2165.
    6. Vazquez, Francisco & Federico, Pablo, 2015. "Bank funding structures and risk: Evidence from the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 1-14.
    7. Daniel Covitz & Nellie Liang & Tobias Adrian, 2015. "Financial Stability Monitoring," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 357-395, December.
    8. Richard J. Rosen, 2010. "The impact of the originate-to-distribute model on banks before and during the financial crisis," Working Paper Series WP-2010-20, Federal Reserve Bank of Chicago.
    9. Committee, Nobel Prize, 2022. "Financial Intermediation and the Economy," Nobel Prize in Economics documents 2022-2, Nobel Prize Committee.
    10. Nada Mora, 2010. "Can banks provide liquidity in a financial crisis?," Economic Review, Federal Reserve Bank of Kansas City, vol. 95(Q III), pages 31-67.
    11. Cornett, Marcia Millon & McNutt, Jamie John & Strahan, Philip E. & Tehranian, Hassan, 2011. "Liquidity risk management and credit supply in the financial crisis," Journal of Financial Economics, Elsevier, vol. 101(2), pages 297-312, August.
    12. Acharya, Viral V. & Afonso, Gara & Kovner, Anna, 2017. "How do global banks scramble for liquidity? Evidence from the asset-backed commercial paper freeze of 2007," Journal of Financial Intermediation, Elsevier, vol. 30(C), pages 1-34.
    13. Ippolito, Filippo & Peydró, José-Luis & Polo, Andrea & Sette, Enrico, 2016. "Double bank runs and liquidity risk management," Journal of Financial Economics, Elsevier, vol. 122(1), pages 135-154.
    14. Efing, Matthias, 2015. "Arbitraging the Basel securitization framework: Evidence from German ABS investment," Discussion Papers 40/2015, Deutsche Bundesbank.
    15. Dong Beom Choi & Hyun-Soo Choi, 2021. "The Effect of Monetary Policy on Bank Wholesale Funding," Management Science, INFORMS, vol. 67(1), pages 388-416, January.
    16. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow Banking Regulation," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 99-140, October.
    17. Marques, Manuel O. & Pinto, João M., 2020. "A comparative analysis of ex ante credit spreads: Structured finance versus straight debt finance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    18. Eisenbach, Thomas M., 2017. "Rollover risk as market discipline: A two-sided inefficiency," Journal of Financial Economics, Elsevier, vol. 126(2), pages 252-269.
    19. Fatih Tuluk, 2019. "Shadow Banking, Capital Requirements and Monetary Policy," Working Papers 2019.05, International Network for Economic Research - INFER.
    20. Rodney Ramcharan & Stéphane Verani & Skander J. Van Den Heuvel, 2016. "From Wall Street to Main Street: The Impact of the Financial Crisis on Consumer Credit Supply," Journal of Finance, American Finance Association, vol. 71(3), pages 1323-1356, June.

    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15730. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.