EconPapers    
Economics at your fingertips  
 

Incentives and Tranche Retention in Securitisation: A Screening Model

Ingo Fender and Janet Mitchell

No 7483, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper examines the power of different contractual mechanisms to influence an originator's choice of costly effort to screen borrowers when the originator plans to securitise its loans. The analysis focuses on three potential mechanisms: the originator holds a "vertical slice", or share of the portfolio; the originator holds the equity tranche of a structured finance transaction; the originator holds the mezzanine tranche, rather than the equity tranche. These mechanisms will result in differing levels of screening, and the differences arise from varying sensitivities to a systematic risk factor. Equity tranche retention is not always the most effective mechanism, and the equity tranche can be dominated by either a vertical slice or a mezzanine tranche if the probability of a downturn is likely and if the equity tranche is likely to be depleted in a downturn. If the choice of how much and what form to retain is left up to the originator, the retention mechanism may lead to low screening effort, suggesting a potential rationale for government intervention.

Keywords: Borrower screening; Retention requirements; Securitisation; Tranching (search for similar items in EconPapers)
JEL-codes: D82 D86 G21 G28 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21) Track citations by RSS feed

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=7483 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Incentives and tranche retention in securitisation: a screening model (2009) Downloads
Working Paper: Incentives and tranche retention in securitisation: a screening model (2009) Downloads
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:cpr:ceprdp:7483

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=7483

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().

 
Page updated 2020-03-26
Handle: RePEc:cpr:ceprdp:7483