Does Securitization Reduce Credit Risk Taking? Empirical Evidence From US Bank Holding Companies
Source: City University of London (Cass)
This paper investigates the impact of securitization on the credit-risk taking behavior of banks. Using US bank holding company data from 2001 to 2007 it is found that banks with a greater balance of outstanding securitized assets choose asset portfolios of lower credit risk. Examining securitizations by the type of underlying assets the authors find that the negative relationship between outstanding securitization and risk taking is primarily driven by securitizations of mortgages and home equity lines of credit. Securitizations of all other types of assets, on the other hand, seem to have no significant impact on bank credit-risk taking behavior.