Securitization and Lending Competition

David Frankel and Yu Jin ()

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: We study the effects of securitization on interbank lending competition when banks see private signals of local applicants' repayment chances. If banks cannot securitize, the outcome is efficient: they lend to their most creditworthy local applicants. With securitization, banks lend also to remote applicants with strong observables in order to lessen the lemons problem they face in selling their securities. This reliance on observables is inefficient, raises the mean default risk, and may lead to a deceptive rise in credit scores.

Keywords: Banks; Securitization; Mortgage Backed Securities; Remote Lending; Internet Lending; Distance Lending; Lending Competition; Signalling; Lemons Problem; Residential Mortgages; Default Risk; Crisis of 2008. (search for similar items in EconPapers)
JEL-codes: D82 G14 G21 (search for similar items in EconPapers)
Date: 2011-11-28
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Securitization and Lending Competition (2015)
Working Paper: Securitization and lending competition (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:34868

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