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Securitization of revolving debt and its determinants

Farrokh Nourzad, William Hunter and Katherine Szczesniak

The Quarterly Review of Economics and Finance, 2020, vol. 75, issue C, 240-246

Abstract: This article examines factors that financial institutions are likely to consider when deciding to securitize a portion of consumer revolving debt rather than retain them on their books. It also investigates whether the period preceding the 2007-2008 financial crisis had an impact on the portion of consumer revolving debt securitized by these institutions. It finds that more consumer revolving debt is securitized when cardholders’ credit conditions deteriorate; when credit card issuers face increasing losses due to cardholder default; when the spread between average credit card rate and the rate financial institutions pay to raise funds widens; and when the general financial and economic conditions worsen. The findings also suggest that financial institutions may have used asymmetric information to increase the portion of consumer revolving debt that they securitized in the years leading to the recent financial crises.

Keywords: Revolving debt; Securitization; Asymmetric information; ARCH (search for similar items in EconPapers)
JEL-codes: G10 G28 C10 C22 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.qref.2019.03.009

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