Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature

Solomon Deku, Alper Kara and Yifan Zhou

International Review of Financial Analysis, 2019, vol. 61, issue C, 245-254

Abstract: We systematically review the recent empirical literature to investigate whether and how securitization influences bank behaviour and its implication on financial stability. We find that, in the years preceding the 2007–2009 financial crisis, banks with higher credit and market risk were more likely to securitize assets. Banks became riskier and increased systemic risk as they took advantage of securitization in order to obtain capital relief. There is robust evidence indicating that mortgage securitization led to a deterioration in bank lending standards via weaker screening, lower denial rates, and misreporting of credit quality. For corporate loan securitization, the empirical findings on lax bank lending are inconclusive. However, it is evident that securitization resulted in poorer ex-post bank monitoring of corporate borrowers. Even though Europe is the second largest securitization market, there is a dearth of evidence on the impact of securitization on European banks' lending behaviour. Research is also very limited on the post-crisis regulatory incentive aligning mechanisms such as the risk retention requirements and the credit ratings reform. Finally, evidence on securitization activity in emerging markets, such as Latin America and China, where securitization volumes have been increasing recently, is relatively non-existent.

Keywords: Securitization; Financial stability; Bank behaviour (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521918301339
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:61:y:2019:i:c:p:245-254

DOI: 10.1016/j.irfa.2018.11.013

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().