Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature

Deku, SY ORCID: https://orcid.org/0000-0003-1579-8708, Kara, A and Zhou, Y, 2018. Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature. International Review of Financial Analysis. ISSN 1057-5219

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Abstract

We systematically review the recent empirical literature to investigate whether and how securitization influences bank behaviour and its implication on financial stability. We find that, in the years preceding the 2007–2009 financial crisis, banks with higher credit and market risk were more likely to securitize assets. Banks became riskier and increased systemic risk as they took advantage of securitization in order to obtain capital relief. There is robust evidence indicating that mortgage securitization led to a deterioration in bank lending standards via weaker screening, lower denial rates, and misreporting of credit quality. For corporate loan securitization, the empirical findings on lax bank lending are inconclusive. However, it is evident that securitization resulted in poorer ex-post bank monitoring of corporate borrowers. Even though Europe is the second largest securitization market, there is a dearth of evidence on the impact of securitization on European banks' lending behaviour. Research is also very limited on the post-crisis regulatory incentive aligning mechanisms such as the risk retention requirements and the credit ratings reform. Finally, evidence on securitization activity in emerging markets, such as Latin America and China, where securitization volumes have been increasing recently, is relatively non-existent.

Item Type:	Journal article
Publication Title:	International Review of Financial Analysis
Creators:	Deku, S.Y., Kara, A. and Zhou, Y.
Publisher:	Elsevier
Date:	30 November 2018
ISSN:	1057-5219
Identifiers:	Number Type 10.1016/j.irfa.2018.11.013 DOI S1057521918301339 Publisher Item Identifier
Divisions:	Schools > Nottingham Business School
Record created by:	Jonathan Gallacher
Date Added:	21 Dec 2018 12:39
Last Modified:	30 May 2020 03:00
URI:	https://irep.ntu.ac.uk/id/eprint/35419

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