Securitized banking and interest rate sensitivity

Brian Du ()
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Brian Du: California State University

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 3, No 3, 876 pages

Abstract: Abstract Gorton and Metrick (J Financ Econ 104:425–451, 2012) coin the term “securitized banking” to refer to the combination of asset securitization activity along with the use of collateral to raise funds in the repo market. To examine securitized banking activities, an augmented measure of Berger and Bouwman’s (Rev Financ Stud 22:3779–3837, 2009) bank liquidity creation is constructed and it is found to be incrementally associated with value implications. This paper explores whether monetary policy regimes have differential implications for its association with interest rate risk for a broad sample of US bank holding companies. The marginal effect of securitized banking on interest rate sensitivity is greater during the contractionary period from 2004Q2 through 2006Q2. However, a corresponding inverse effect during the expansionary period from 2007Q3 through 2008Q4 is not found to be significant. These results are attributed to an attenuation in asset quality due to lax lending standards from a feedback effect in the period preceding the crisis, while there was an overall flight-to-quality during the crisis.

Keywords: Interest rate risk; Financial crisis; Liquidity creation; Banking (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s11156-019-00809-4

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