Securitization and the Balance Sheet Channel of Monetary Transmission

Uluc Aysun and Ralf Hepp

Fordham Economics Discussion Paper Series from Fordham University, Department of Economics

Abstract: This paper shows that the balance sheet channel of monetary transmission works mainly through U.S. bank holding companies that securitize their assets. This finding is different, in spirit, from the widely-found negative relationship between financial development and the strength of the lending channel of monetary transmission. Focusing on the balance sheet channel, and using bank-level observations, we find that securitized banks are more sensitive to borrowers' balance sheets and that monetary policy has a greater impact on this sensitivity for securitizing bank holding companies. The optimality conditions from a simple partial equilibrium framework suggest that the positive effects of securitization on policy effectiveness could be due to the high sensitivity of security prices to policy rates.

Keywords: balance sheet channel; banks; bank holding companies; securitization. (search for similar items in EconPapers)
JEL-codes: E44 F31 F41 O16 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-bec, nep-cba, nep-mac and nep-mon
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https://archive.fordham.edu/ECONOMICS_RESEARCH/PAPERS/dp2010_05_aysun_hepp.pdf (application/pdf)

Related works:
Journal Article: Securitization and the balance sheet channel of monetary transmission (2011)
Working Paper: Securitization and the balance sheet channel of monetary transmission (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:frd:wpaper:dp2010-05

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