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The Systemic Risk of Corporate Credit Securitization Revisited

Benjamin Lojak () and Thomas Theobald ()
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Benjamin Lojak: University Bamberg

No 204-2020, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: We develop a stock-flow-consistent macroeconomic model with an agent-based focus on corporate credit markets, including a securitization process. Against the background of increased corporate indebtedness, our interest is in quantifying contagion effects that endogenously arise from corporate defaults in a securitized credit portfolio. We calibrate the model to the U.S., where corporate credit securitization has been re-intensified in recent years. Simulations deliver adverse medium- to long-term effects as soon as the share of securitized loans in total new loans economy-wide approaches 10%. Securitization activities above this threshold lead to significant welfare losses from the medium-term onwards. Two transmission channels are conceivable. A collapsing special purpose vehicle (SPV) either causes distortions in the banking sector or increases liquidity constraints that ultimately dampen households' consumption due to their financial investment in the securitized tranches. A more concentrated banking sector reinforces the adverse shock of a liquidation of the SPV. In contrast, a faster and better-equipped bank rescue mechanism in the form of levies within the banking sector helps to contain the consequences of a SPV collapse.

Keywords: securitization; systemic risk; agent-based; stock-flow consistent (search for similar items in EconPapers)
JEL-codes: E03 G21 G23 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2020
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