Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Casu, Barbara; Clare, Andrew; Sarkisyan, Anna; Thomas, Stephen

doi:10.1080/1351847x.2010.538526

Cited by 65 publications

(56 citation statements)

References 51 publications

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“…Also, Jiangli and Pritsker (2008) find that the securitization of mortgage loans affects negatively the insolvability risk of American bank holdings. Similarly, Casu et al (2010) find evidence supporting the stability effect of mortgage securitization in USA.…”

Section: Review Of Previous Studiesmentioning

confidence: 76%

“…We join thus, the results of Dionne and Harchaoui (2003) for the Canadian banks. Jiangli and Pritsker (2008) and Casu et al (2010) have in contrast, supported a stabilizing effect of securitization techniques in the American banking system.…”

Section: Impact Of Securitization On Bank's Credit Riskmentioning

confidence: 99%

“…The first one captures the allocation of assets between different categories of risks. The second measure proposed by Roy (1952) and used by Goyeau and Tarazi (1992), Boyd et al (2006), Laeven and Levine (2006) Berger and Udell (1993), Dionne and Harchaoui (2003) and Casu et al (2010), we approximate the securitization activity (TSECTA) using the ratio of the total securitized assets to total assets. Also, we distinguish between two classes of securitized assets and calculate: the ratio of mortgage securitized assets to total assets (MBSTA) and the ratio of non mortgage securitized assets to total assets (OSECTA).…”

Section: Definition and Measurement Of The Variablesmentioning

confidence: 99%

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Effects of Securitization on Credit Risk and Banking Stability: Empirical Evidence from American Commercial Banks

Salah¹,

Fedhila²

2012

IJEF

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This study investigates the impact of securitization on risk behavior and banking stability. Based on a sample of 174 US commercial banks from 2001 to 2008, we find that a greater recourse to securitization is associated with a deterioration in the quality of American banks' loan portfolios and an increase of the credit risk in their balance sheets. In the other hand, we observe a positive and significant impact of securitization on banking stability. We think that this paradox is due to the fact that different classes of securitized assets lead to heterogeneous effects on American banks' stabilities. Particularly, our results show that mortgage securitization has a positive and significant impact on banking stability, providing thus a support to the implicit recourse hypothesis. Inversely, non mortgage securitization has a negative effect on banking stability because of the reduction of banks' monitoring incentives related to this particular form of securitization.

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Section: Review Of Previous Studiesmentioning

confidence: 76%

Section: Impact Of Securitization On Bank's Credit Riskmentioning

confidence: 99%

Section: Definition and Measurement Of The Variablesmentioning

confidence: 99%

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Effects of Securitization on Credit Risk and Banking Stability: Empirical Evidence from American Commercial Banks

Salah¹,

Fedhila²

2012

IJEF

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“…The impaired loans ratio (IMP, impaired loans/gross loans) takes into account for the banks credit risk, as it can be considered as a proxy of portfolio quality (Casu et al, 2011). We also include Tier 1 as a proxy of bank capitalisation and the leverage (LEV).…”

Section: Control Variablesmentioning

confidence: 99%

Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Battaglia

Gallo

2017

Journal of International Financial Markets, Institutions and Mo

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This is the accepted version of the paper.This version of the publication may differ from the final published version. Keywords: board composition; bank ownership; systemic risk; financial crisis JEL classification: G01; G21; G32 Permanent repository link IntroductionCorresponding authorThe role of corporate governance in banking has been highlighted by academics as well as by regulators and policy makers (see e.g. Basle Committee on Banking Supervision, 2010;Organization for Economic Co-operation and Development, 2010). Many academic studies emphasize how flaws in bank governance played a key role in the performance of banks during the crisis (Diamond and Rajan, 2009;Bebchuk and Spamann, 2010, Beltratti andStulz, 2012). Since the 2007, an increasing number of proposals and initiatives have attempted to identify and mitigate these flaws revealed by the financial crisis (Kirkpatrick, 2009) aiming to promote better corporate governance standards in banking, while recognizing the special nature of banks when compared to other firms. On the other hand, the financial crisis revealed the dramatic impact of excessive risktaking behaviour of banks on the global financial stability, especially in terms of underestimated consequences of unregulated systemic risk-taking. As the literature has widely investigated poor or weak corporate governance as well as the increasing systemic nature of the banking sector as major causes of the crisis, to the best of our knowledge there is still a limited understanding of the relationship between corporate governance characteristics and banks' incentive to become more expose to systemic risk. As suggested by de Andres and Vallelado (2008), the aim of banking regulators to reduce the runs and their systemic consequences on the stability of the system might come into conflict with the main purpose of shareholders which is to improve the shareholders value by also increasing risk-taking. Taking on risks and tail and systemic risks, in particular, may enhance bank performance in the short run (i.e. by increasing the leverage), but it can cause significant damage to the institution and the whole system when such risks materialize (i.e. fire sales "effects"). During the global financial crisis, European banks exposed themselves to tail and systemic risks in various ways. Among others, the most recent literature has highlighted how European banks' exposures to tail risks in the form of shadow banking activities were later transformed into severe losses on the balance sheets (Acharya et al., 2013: Arteta et al., 2013).An increase in systemic and tail risks by large banks could be supported by the implicit too-big-to fail guarantee and the reduced market discipline (Acharya et al.,2010). In fact, it could be difficult, both for outsiders and insiders, to distinguish between risk-taking activities that generate high returns and those that offer high returns as compensation for taking tail risk through complex and opaque activities (Ellul and Yerramilli, 2013). In this context, the presence of a s...

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“…Finally, the residual presence of moral hazard in the securitization market can be tested with appropriate data (Casu et al 2011;Dionne 2009;Dionne and Harchaoui 2008). One possibility is to test how efficiently a new regulation related to the introduction of an equity tranche reduces moral hazard based on a panel containing securitization data before and after the new regulation.…”

Section: Discussionmentioning

confidence: 99%

Optimal Form of Retention for Securitized Loans under Moral Hazard

Dionne

Malekan

2017

Risks

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Abstract:We address the moral hazard problem of securitization using a principal-agent model where the investor is the principal and the lender is the agent. Our model considers structured asset-backed securitization with a credit enhancement (tranching) procedure. We assume that the originator can affect the default probability and the conditional loss distribution. We show that the optimal form of retention must be proportional to the pool default loss even in the absence of systemic risk when the originator can affect the conditional loss given default rate, yet the current regulations propose a constant retention rate.

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Does securitization reduce credit risk taking? Empirical evidence from US bank holding companies

Cited by 65 publications

References 51 publications

Effects of Securitization on Credit Risk and Banking Stability: Empirical Evidence from American Commercial Banks

Effects of Securitization on Credit Risk and Banking Stability: Empirical Evidence from American Commercial Banks

Strong boards, ownership concentration and EU banks’ systemic risk-taking: Evidence from the financial crisis

Optimal Form of Retention for Securitized Loans under Moral Hazard

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