Securitization is not that evil after all

Ugo Albertazzi, Ginette Eramo (), Leonardo Gambacorta and Carmelo Salleo ()
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Ginette Eramo: Bank of Italy
Carmelo Salleo: European Systemic Risk Board Secretariat

No 796, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: A growing number of studies on the US subprime market indicate that, due to asymmetric information, credit risk transfer activities have perverse effects on banks� lending standards. We investigate a large part of the market for securitized assets (�prime mortgages�) in Italy, a country with a regulatory framework analogous to the one prevalent in Europe. Information on over a million mortgages consists of loan-level variables, characteristics of the originating bank and, most importantly, contractual features of the securitization deal, including the seniority structure of the ABSs issued by the Special Purpose Vehicle and the amount retained by the originator. We borrow a robust way to test for the effects of asymmetric information from the empirical contract theory literature (Chiappori and Salani�, 2000). Overall, our evidence suggests that banks can effectively counter the negative effects of asymmetric information in the securitization market by selling less opaque loans, using signaling devices (i.e. retaining a share of the equity tranche of the ABSs issued by the SPV) and building up a reputation for not undermining their own lending standards.

Keywords: securitization; asymmetric information; signaling; reputation (search for similar items in EconPapers)
JEL-codes: D82 G21 (search for similar items in EconPapers)
Date: 2011-02
New Economics Papers: this item is included in nep-ban, nep-cta and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Working Paper: Securitization is not that evil after all (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_796_11

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