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Securitization without risk transfer

Viral Acharya (), Philipp Schnabl () and Gustavo Suarez

Journal of Financial Economics, 2013, vol. 107, issue 3, 515-536

Abstract: We analyze asset-backed commercial paper conduits, which experienced a shadow-banking run and played a central role in the early phase of the financial crisis of 2007–2009. We document that commercial banks set up conduits to securitize assets worth $1.3 trillion while insuring the newly securitized assets using explicit guarantees. We show that regulatory arbitrage was an important motive behind setting up conduits. In particular, the guarantees were structured so as to reduce regulatory capital requirements, more so by banks with less capital, and while still providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that conduits provided little risk transfer during the run, as losses from conduits remained with banks instead of outside investors and banks with more exposure to conduits had lower stock returns.

Keywords: Asset-backed commercial paper (ABCP); Shadow banking; Regulatory arbitrage; Bank capital; Conduits; Structured investment vehicle (SIV) (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Securitization Without Risk Transfer (2012) Downloads
Working Paper: Securitization without risk transfer (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:3:p:515-536

DOI: 10.1016/j.jfineco.2012.09.004

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