Asset-Backed Securitization and Financial Stability: The Downgrading Delay Effect

Mario Torre and Fabiomassimo Mango

Chapter 5 in Bank Performance, Risk and Firm Financing, 2011, pp 106-134 from Palgrave Macmillan

Abstract: Abstract Asset-backed securitization (ABS) may contribute to generating instability in financial markets both through an ‘inside effect’ in the banking system — facilitating progressive deterioration of bank assets’ quality — and through an ‘outside effect’ — favouring credit risk transfer from balance sheets of banks acting as originators to investors in asset-backed securities (ABS). The rating assigned to ABS has the function of indicating to the market the credit risk borne by investors. This depends on the quality of assets and of guarantees lent by originators and by any third-party guarantor, as well as on the trend of macroeconomic determinants which may compromise the capacity of principal debtors to honour their debts.

Keywords: Balance Sheet; Credit Risk; Financial Stability; Macroeconomic Variable; Macro Variable (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:pal:pmschp:978-0-230-31387-3_6

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DOI: 10.1057/9780230313873_6

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