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Off-balance sheet credit exposure and asset securitisation: what impact on bank credit supply?

  • Scopelliti, Alessandro Diego

The present paper analyzes two important aspects in the amplification process of the recent financial crisis to the real economy, that is the securitisation of financial assets (and in particular of loans and mortgages) and the growth of bank off-balance sheet activities, for instance through the development of Special Purpose Vehicles, with specific attention to the US context. In particular, this work aims to examine whether and how the increase in off-balance sheet credit exposure to credit derivatives, mainly due to loan securitisation, may have affected the growth rate of loans over the past few years, also by distinguishing different categories of loans. For this purpose, we present the results of a panel fixed-effect estimation and of a panel VAR analysis, using quarterly data from the balance sheets of 39 US commercial banks and for a period between 1998 and 2008. The results show that a rise in off-balance credit exposure may have – after some time lags - a negative impact on the growth rate of bank lending, due to the potential and actual losses related to the off-balance sheet activities. However, the effects on the single categories of loans depend on their maturity: the negative effect due to an increase in off-balance sheet exposure is stronger for long-term loans, like mortgages or real estate loans, while some positive impact on bank lending may arise for short-term loans, such as commercial and industrial loans, because of the liquidity/maturity transformation function associated with securitisation activities. The results of the paper regarding the impact of an increase in off-balance sheet exposures on bank deleveraging process may have some relevant policy implications for the design of financial regulation, particularly in the area of shadow banking, supporting the current policy initiatives for the revision of risk weights in securitisation exposures as well as for the implementation of consolidation regimes concerning bank off-balance sheet activities.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43890.

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Date of creation: 18 Jan 2013
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Handle: RePEc:pra:mprapa:43890
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  1. Mora, Nada & Logan, Andrew, 2010. "Shocks to bank capital: evidence from UK banks at home and away," Bank of England working papers 387, Bank of England.
  2. Aiyar, Shekhar, 2011. "How did the crisis in international funding markets affect bank lending? Balance sheet evidence from the United Kingdom," Bank of England working papers 424, Bank of England.
  3. Mody, Ashoka & Taylor, Mark P., 2004. "Financial predictors of real activity and the financial accelerator," Economics Letters, Elsevier, vol. 82(2), pages 167-172, February.
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