Asymmetric information and the securitization of SME loans

Ugo Albertazzi, Margherita Bottero, Leonardo Gambacorta and Steven Ongena

No 1091, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: Using credit register data for loans to Italian firms we test for the presence of asymmetric information in the securitization market by looking at the correlation between the securitization (risk-transfer) and the default (accident) probability. We can disentangle the adverse selection from the moral hazard component for the many firms with multiple bank relationships. We find that adverse selection is widespread but that moral hazard is confined to weak relationships, indicating that a strong relationship is a credible enough commitment to monitor after securitization. Importantly, the selection of which loans to securitize based on observables is such that it largely offsets the (negative) effects of asymmetric information, rendering the overall unconditional quality of securitized loans significantly better than that of non-securitized ones. Thus, despite the presence of asymmetric information, our results are not in line with the view that credit-risk transfer leads to lax credit standards.

Keywords: securitization; SME loans; moral hazard; adverse selection (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Asymmetric information and the securitization of SME loans (2021)
Working Paper: Asymmetric information and the securitization of SME loans (2017)
Working Paper: Asymmetric information and the securitization of SME loans (2017)
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