Liu, Luke (2011): Securitization and moral hazard: Does security price matter?
Download (893kB) | Preview
This article analyses the effect of security price on the behaviour of bank securitization. We present a model of bank securitization in which security price together with liquid constraints create the incentive for banks to originate and sell assets backed securities to investors. Banks have a comparative advantage in locating and screening projects within their locality. Our results show that under the buyer’s market pricing mechanism the banks with different liquidity constraints can share the risk and the moral hazard problem is not serious; but under the seller’s market pricing mechanism the banks have the incentive to conduct strategic securitization and the moral hazard problem is serious. Our main idea has been supported by the subprime crisis broke in the US in 2007.
|Item Type:||MPRA Paper|
|Original Title:||Securitization and moral hazard: Does security price matter?|
|English Title:||Securitization and moral hazard: Does security price matter?|
|Keywords:||Securitization; Security price; Moral hazard|
|Subjects:||C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C50 - General
C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
|Depositing User:||Luke Liu|
|Date Deposited:||26. Nov 2011 09:43|
|Last Modified:||19. Feb 2013 18:09|
Allen, F., Carletti, E., 2006. Credit risk transfer and contagion. Journal of Monetary Economics. 53, 89–111.
Berndt, A., Gupta, A., 2009. Moral hazard and adverse selection in the originate-to-distribute model of bank credit. Journal of Monetary Economics. 56, 725–743.
Bernanke, B. and M. Gertler, 1987, Banking and macroeconomic equilibrium, in: W. Barnett and K.Singleton, eds., New approaches to monetary economics (Cambridge University Press, New York,NY), pp. 89-111.
Calomiris, C., Mason, J., 2004. Credit card securitization and regulatory arbitrage. Journal of Financial Services Research. 26, 5–28.
Campbell, Tim, and William Kracaw, 1980, Information production, market signalling, and the theory of intermediation, Journal of Finance 35, 863-882.
Carlstrom, C., Samolyk, K., 1995. Loan sales as a response to market-based capital constraints. Journal of Banking Finance 19, 627–646.
Caballero, R., Krishnamurthy, A., 2008. Collective risk management in a flight to quality episode. Journal of Finance 63, 2195–2230.
Caballero, R., Krishnamurthy, A., 2009. Global imbalances and financial fragility. AER Papers and Proceedings 99, 584–588.
Carlstrom Charles T. and Katherine A. Samolyk,1995.Loan sales as a response to market-based capital constraints. Journal of Banking & Finance 19,627-646.
Duffee, G., Zhou, C., 2001. Credit derivatives in banking: Useful tools for managing risk? J. Monet. Econ. 48, 25–54.
Dell’Ariccia, G., Igan, D., Laeven, L., 2008. Credit Booms and Lending Standards: Evidence From The Subprime Mortgage Market. Discussion Papers 6683. C.E.P.R.
Fulghieri, Paolo, and Dmitry Lukin, 2001, Information production, dilution costs, and optimal security design, Journal of Financial Economics 61, 3–42.
Gorton, G., Pennacchi, G., 1995. Banks and loan sales: Marketing nonmarketable assets. Journal of Monetary Economics. 35, 389–411.
Gorton, G., Metrick, A., 2009. Securitized banking and the run on repo. NBER working paper no. 15223.
He Jie, Qian Jun, and Strahan Philip E., 2011. Credit Ratings and the Evolution of the Mortgage-Backed Securities Market, American Economic Review: Papers & Proceedings, 101:3, 131–135
Ho Shirley J.and Hao-Chang Sung,2012. The informational and strategic impacts of real earnings management. Annals of Economics and Finance 13-2, 363–387.
Inderst, Roman, and Holger M Mueller, 2006, Informed lending and security design, Journal of Finance 61, 2137-2162.
Jalles Joao Tovar,2009. Do oil prices matter? The case of a small open economy. Annals of Economics and Finance 10-1, 65–87.
Kaplan, S., Stein, J., 1993. The evolution of buyout pricing and financial structure in the 1980s. Quarterly Journal of Economics 108, 313–358.
Keys, B., Mukherjee, T., Seru, A., Vig, V., 2010. Did securitization lead to lax screening? Evidence from subprime loans. Quarterly Journal of Economics 125, 307–362.
Mei Jianping, Jose A. Scheinkman, Wei Xiong,2009. Speculative trading and stock prices: evidence from Chinese A-B share premia. Annals of Economics and Finance 10-2, 225–255.
Mian, A., Sufi, A., 2009. The consequences of mortgage credit expansion: Evidence from the 2007 mortgage default crisis. Quarterly Journal of Economics. 124, 1449–1496.
Nicolo, A., Pelizzon, L., 2008. Credit derivatives, capital requirements and opaque OTC markets. Journal of Financial Intermediation 17, 444–463.
Parlour, C., Plantin, G., 2008. Loan sales and relationship banking. Journal of Finance 63, 1291–1314.
Purnanandam, A.K., 2009. Originate-to-distribute model and the sub-prime mortgage crisis. Mimeo.
Rahi, R., 1996. Adverse selection and security design. Review of Economic Studies 63, 287–300.
Samolyk, K., 1989, The role of banks in influencing regional flows of funds, Federal Reserve Bank of Cleveland, Working Paper No. 8914.
Shleifer, Andrei, and Robert W. Vishny, 2010, Unstable banking, Journal of Financial Economics, forthcoming.
Wagner, G., Marsh, I., 2006. Credit risk transfer and financial sector stability. Journal of Financial Stability 2, 173–193.
Zandi, Mark (2009). Financial Shock. FT Press. ISBN 978-0-13-701663-1.
Available Versions of this Item
- Securitization and moral hazard: Does security price matter? (deposited 26. Nov 2011 09:43) [Currently Displayed]