Safe Collateral, Arm's-Length Credit: Evidence from the Commercial Real Estate Mortgage Market

Lamont K. Black, John Krainer and Joseph B. Nichols
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Joseph B. Nichols: https://www.federalreserve.gov/econres/joseph-b-nichols.htm

No 2017-056, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating that the securitization channel, when available, funds safe collateral.

Keywords: Collateral; Commercial banking; Commercial real estate; Securitization (search for similar items in EconPapers)
JEL-codes: G21 G24 G33 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2017-05
New Economics Papers: this item is included in nep-ban, nep-dcm, nep-fmk and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2017-56

DOI: 10.17016/FEDS.2017.056

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