Determinants of credit loan securitization in Chinese banking

Jie Li, Zhenyu Sheng and Aaron D. Smallwood

Pacific Economic Review, 2021, vol. 26, issue 2, 241-262

Abstract: This paper investigates the factors that drive securitization in China using a panel dataset drawn from the financial statements of 83 commercial banks. Given the unique banking and regulatory environment in China, we consider both conventional motivations for securitization and the role of nontraditional factors, including shadow banking. Across a variety of econometric specifications, there is little evidence that banks securitize for typical reasons, including to fund liquidity, transfer credit risk, or reduce regulatory capital. We do find, however, that as banks approach limits on loan to deposit ratios, subsequent securitization activities rise. In addition, robust evidence is presented to show that high levels of nontraditional banking activities precede a decision to securitize. As there is little evidence to suggest that shadow banking activities are receding, the overall findings indicate that banks may be using securitization to mitigate regulatory risk.

Date: 2021
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https://doi.org/10.1111/1468-0106.12343

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