posted on 2017-03-31, 08:58authored byAlper Kara, David Marques-Ibanez, Steven Ongena
Banks are usually better informed on the loans they originate than other financial intermediaries. As a result, securitized loans might be of lower credit quality than otherwise similar non-securitized loans. We assess the effect of securitization activity on loans’ relative credit quality employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, at issuance, banks do not seem to select and securitize loans of lower credit quality. Following securitization, however, the credit quality of borrowers whose loans are securitized deteriorates by more than those in the control group. We find tentative evidence suggesting that poorer performance by securitized loans might be linked to banks’ reduced monitoring incentives. From our findings it follows that current iniciatives on risk retention by the originator, and more detailed loan-by-loan information on loan credit quality would be useful to reap out the benefits of securitization.
History
School
Business and Economics
Department
Business
Published in
European Central Bank, Working Paper Series
Issue
2009
Citation
KARA, A., MARQUES-IBANEZ, D. and ONGENA, S., 2017. Securitization and credit quality. European Central Bank, Working Paper Series; 2009, Frankfurt: European Central Bank, 42pp.
This work is made available according to the conditions of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0) licence. Full details of this licence are available at: https://creativecommons.org/licenses/by-nc-nd/4.0/
Publication date
2017
Notes
This working paper was published by the European Central Bank and the definitive published version is available at http://dx.doi.org/10.2866/696711