Mortgage Securitization and Shadow Bank Lending

The liquidity coverage ratio and liquidity risk monitoring tools

Pedro Gete and Michael Reher

The Review of Financial Studies, 2021, vol. 34, issue 5, 2236-2274

Abstract: We show how securitization affects the size of the nonbank lending sector through a novel price-based channel. We identify the channel using a regulatory spillover shock to the cross-section of mortgage-backed security prices: the U.S. liquidity coverage ratio. The shock increases secondary market prices for FHA-insured loans by granting them favorable regulatory status once securitized. Higher prices lower nonbanks’ funding costs, prompting them to loosen lending standards and originate more FHA-insured loans. This channel accounts for 22% of nonbanks’ growth in overall mortgage market share over 2013–2015. While the shock creates risks for financial stability, homeownership also increases.

JEL-codes: E32 E44 G12 G18 G21 G23 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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