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Arbitraging the Basel securitization framework: Evidence from German ABS investment

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  • Efing, Matthias

Abstract

This paper provides evidence for regulatory arbitrage within the class of assetbacked securities (ABS) based on individual asset holding data of German banks. I find that those banks operating with tight regulatory constraints pick the securities with the highest yield and lowest collateral quality among ABS with the same regulatory risk weight. This ABS selection allows banks to increase the return on the capital required for an ABS investment by a factor of four.

Suggested Citation

  • Efing, Matthias, 2015. "Arbitraging the Basel securitization framework: Evidence from German ABS investment," Discussion Papers 40/2015, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:402015
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    4. Angela Gallo & Min Park, 2023. "CLO (Collateralized Loan Obligation) Market and Corporate Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(5), pages 1077-1118, August.
    5. John Ammer & Alexandra Tabova & Caleb Wroblewski, 2018. "Searching for yield abroad: risk-taking through foreign investment in U.S. bonds," BIS Working Papers 687, Bank for International Settlements.
    6. repec:ces:ifodic:v:17:y:2019:i:1:p:50000000005874 is not listed on IDEAS
    7. Hodula, Martin & Libich, Jan, 2023. "Has monetary policy fueled the rise in shadow banking?," Economic Modelling, Elsevier, vol. 123(C).
    8. Esa Jokivuolle & George Pennacchi, 2019. "Designing a Multinational Deposit Insurance System: Implications for the European Deposit Insurance Scheme," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(01), pages 21-25, May.
    9. Office of Financial Research (ed.), 2016. "2016 Financial Stability Report," Reports, Office of Financial Research, US Department of the Treasury, number 16-3.
    10. Andrea Mazzocchetti & Marco Raberto & Andrea Teglio & Silvano Cincotti, 2018. "Securitization and business cycle: an agent-based perspective," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(6), pages 1091-1121.
    11. Martin Hodula, 2019. "Monetary Policy and Shadow Banking: Trapped between a Rock and a Hard Place," Working Papers 2019/5, Czech National Bank.
    12. John Ammer & Alexandra Tabova & Stijn Claessens, 2018. "Searching for Yield Abroad: Risk-Taking through Foreign Investment in U.S. Bonds," 2018 Meeting Papers 960, Society for Economic Dynamics.

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    More about this item

    Keywords

    regulatory arbitrage; asset-backed securities; risk-taking; credit ratings;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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