Conference Paper

The role of securitization in bank financial management


Abstract: This paper studies the effect of securitization on bank lending. I propose a new index of ?securitizability of a bank portfolio? that can be thought of as a weighted average of the potential to securitize loans of a given type, where the weights reflect the composition of a bank loan portfolio. I use this new index to show that securitization makes bank lending less sensitive to cost of fund shocks because it provides banks with an additional source of funding. Securitization thus weakens the link from monetary policy to bank lending activity. Furthermore, by allowing banks to convert illiquid loans into liquid funds, securitization reduces banks? holdings of liquid securities and increases their loan portfolios.

Keywords: Asset-backed financing; Bank liquidity;

Status: Published in Conference on Bank Structure and Competition (2006: 42nd) ; Innovations in real estate markets : risk, rewards, and the role of regulation

Authors

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Proceedings

Publication Date: 2006

Number: 1025

Pages: 204-222