Securitisation and Financial Stability

Hyun Song Shin

Economic Journal, 2009, vol. 119, issue 536, 309-332

Abstract: A widespread opinion before the credit crisis of 2007/8 was that securitisation enhances financial stability by dispersing credit risk. After the credit crisis, securitisation was blamed for allowing the ‘hot potato’ of bad loans to be passed to unsuspecting investors. Both views miss the endogeneity of credit supply. Securitisation enables credit expansion through higher leverage of the financial system as a whole. Securitisation by itself may not enhance financial stability if the imperative to expand assets drives down lending standards. The ‘hot potato’ of bad loans sits in the financial system on the balance sheets of large banks rather than being sold on to final investors, since the aim of financial intermediaries is to expand lending in order to utilise slack in balance sheet capacity.

Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (91)

Downloads: (external link)
https://doi.org/10.1111/j.1468-0297.2008.02239.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:econjl:v:119:y:2009:i:536:p:309-332

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1468-0297

Access Statistics for this article

Economic Journal is currently edited by Estelle Cantillon, Martin Cripps, Andrea Galeotti, Morten Ravn, Kjell G. Salvanes, Frederic Vermeulen, Hans-Joachim Voth and Rachel Kranton

More articles in Economic Journal from Royal Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().