Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences

Andrea Pescatori and Juan Sole

No 2016/076, IMF Working Papers from International Monetary Fund

Abstract: We show evidence that interest rate hikes slowdown loan growth but lead intermediation to migrate from banks’ balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily byb private-label securitization. On the other hand, the government sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.

Keywords: WP; government sponsored enterprise; mortgage; bank; federal funds rate; asset; Monetary policy; monetary policy shocks; VAR; proxy VAR; financial intermediation; shadow banking; securitization; GSE; private-label ABS issuers; securitization activity; GSE assets; monetary policy shock; financing FHLB bank; GSE securitization; securitization market; Mortgages; Central bank policy rate; Monetary tightening; Loans; Global (search for similar items in EconPapers)
Pages: 21
Date: 2016-03-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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