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Performance and regulatory effects of non-compliant loans in German synthetic mortgage-backed securities transactions

Gaby Trinkaus

No 2010,06, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

Abstract: Over the term of a securitization transaction, the concept of non-compliance allows a securitizing bank to classify a securitized loan as materially non-compliant with certain transaction requirements. Such a loan becomes unqualified for loss allocation. Therefore, non-compliant loans can directly affect transaction performance and the extent of risk transfer achieved with the transaction. The concept of non-compliance is incorporated in many securitizations independent of the underlying assets or structure. In Germany, there are currently no specific regulations regarding this concept. However, a bank can use discretion when classifying a loan as non-compliant and could thus report non-compliant loans strategically. This hypothesis is tested and confirmed based on a unique data set.

Keywords: Non-compliance; risk transfer; securitization (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban and nep-reg
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