Securitization and Lending Competition

David Frankel and Yu Jin

The Review of Economic Studies, 2015, vol. 82, issue 4, 1383-1408

Abstract: We study the effects of securitization on interbank lending competition. An applicant's observable features are seen by a remote bank, while her true credit quality is known only to a local bank. Without securitization, the remote bank does not compete because of a winner's curse. With securitization, in contrast, ignorance is bliss: the less a bank knows about its loans, the less of a lemons problem it faces in selling them. This enables the remote bank to compete successfully in the lending market. Consistent with the empirical evidence, remote and securitized loans default more than observationally equivalent local and unsecuritized loans, respectively.

Keywords: Banks; Securitization; Mortgage backed securities; Remote lending; Internet lending; Distance lending; Lending competition; Asymmetric information; Signalling; Screening; Adverse selection; Lemons problem; Residential mortgages; Default Risk (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Securitization and Lending Competition (2011)
Working Paper: Securitization and lending competition (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:82:y:2015:i:4:p:1383-1408.

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