THE IMPACT OF SFAS166/167 ON BANK LIQUIDITY AND LENDING

Qiuhong Zhao () and Dana A. Forgione
Additional contact information
Qiuhong Zhao: College of Business, Texas A&M University Corpus Christi, 6300 Ocean Drive, Unit 5808, Corpus Christi, Texas 78412, USA
Dana A. Forgione: Endowed Chair of the Jessie Francis Neal Foundation & Clifton W. Coonrod Endowment, Texas A&M University Corpus Christi, 6300 Ocean Drive, Corpus Christi, Texas 78412, USA

Journal of Financial Management, Markets and Institutions (JFMMI), 2024, vol. 12, issue 01, 1-29

Abstract: This study examines whether, and to what extent, SFAS166/167 changed the role of securitization in bank liquidity and lending activities. We compare the sensitivity of on-balance sheet loan growth to the loan portfolio liquidity index proposed by Loutskina [(2011) The role of securitization in bank liquidity and funding management, Journal of Financial Economics 100, 663–684] between affected banks and control banks. We find that SFAS166/167 is significantly associated with a reduction in the use of securitization to enhance on-balance sheet liquidity, consistent with the view that consolidation on balance sheets may render the securitization of loans too costly to be considered an effective source of liquidity. In addition, we find that affected banks with the highest increase in liabilities from consolidating Qualified Special Purpose Entities (QSPEs) experienced a significant decrease in lending activities relative to the control banks. This is likely because consolidating former QSPEs may adversely affect the ability and willingness of banks to engage in securitization and issue new loans. Taken together, our results suggest that SFAS166/167, requiring the consolidation of former QSPEs, led to a decline in the role of securitization as a liquidity management tool in banks and to a significant decline in lending.

Keywords: SFAS 166/167; securitization; liquidity; lending; consolidation; QSPE; VIE (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2282717X23500147
Open Access

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:wsi:jfmmix:v:12:y:2024:i:01:n:s2282717x23500147

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2282717X23500147

Access Statistics for this article

Journal of Financial Management, Markets and Institutions (JFMMI) is currently edited by Santiago Carbo-Valverde

More articles in Journal of Financial Management, Markets and Institutions (JFMMI) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().