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Why do banks securitise their assets? Bank-level evidence from over one hundred countries in the pre-crisis period

Fabio Panetta () and Alberto Franco Pozzolo ()
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Fabio Panetta: Bank of Italy
Alberto Franco Pozzolo: University of Molise

No 1183, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We investigate the causes and consequences of securitisations using a large data set of banks from over 100 world countries between 1991 and 2007, when the financial crisis caused the market to collapse. Our results show that banks were more likely to securitise their assets when they faced binding capital requirements and when the direct and indirect costs of these operations were lower (e.g., administrative expenses or the loss implied in the sale of opaque assets in an imperfect information environment). We also find evidence that banks securitised their assets to contain credit risk and reduce the exposure to liquidity shocks. The ex-post effects of securitisations are consistent with these ex-ante determinants. After the securitisation, banks improved their capital ratios and did not increase their riskiness. More important, they increased their credit supply. These results suggest that if properly used, these techniques can provide additional flexibility in managing banks’ activities and risk, and can foster credit supply. But, as the crisis has made well clear, provisions must be taken to avoid that some banks may use these new techniques in a way that increases individual and especially systemic risk.

Keywords: credit risk transfer; securitisation; financial derivatives (search for similar items in EconPapers)
JEL-codes: G21 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-rmg
Date: 2018-07
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