Securitisation and banking risks: what do we know so far?

Purpose – Bank securitisation is deemed to have been a major contributing factor to the 2007/2008 financial crises via fuelling credit growth accompanied by lower banks’ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable a...

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Main Authors: Alper Kara, Aydin Ozkan, Yener Altunbas
Format: Default Article
Published: 2016
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Online Access:https://hdl.handle.net/2134/21693
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spelling rr-article-95007712016-01-01T00:00:00Z Securitisation and banking risks: what do we know so far? Alper Kara (1251537) Aydin Ozkan (7198718) Yener Altunbas (7198721) Other commerce, management, tourism and services not elsewhere classified Financial crisis Bank risk taking Securitization Business and Management not elsewhere classified Purpose – Bank securitisation is deemed to have been a major contributing factor to the 2007/2008 financial crises via fuelling credit growth accompanied by lower banks’ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable as risk was more easily diversified, managed and allocated economy-wide. The purpose of this paper is to review the extant literature to explore the so far generated knowledge on the impact of securitisation on banking risks. In particular, the authors examine the theoretical arguments and empirical studies on securitisation and banking risks before and after the global financial crisis of 2007/2008. Design/methodology/approach – Review and discussion of the literature. Findings – Theoretical literature univocally accentuate the undesirable consequences of securitisation, which may promote retention of riskier loans, undermine banks’ screening and monitoring incentives and enhance banks’ risk appetite. However, empirical evidence does not uniformly support the theoretical conclusions. If banks are securitisation active they lend more to risky borrowers, have less diversified portfolios and hold less capital, retain riskier loans and are aggressive in loan pricing. Others argue that securitisation reduces banks insolvency risk, increases profitability, provides liquidity and leads to greater supply of loans. Mortgage securitisation is an area where there is consistent evidence of bank risk taking via securitisation. Originality/value – The paper identifies open issues for future research. 2016-01-01T00:00:00Z Text Journal contribution 2134/21693 https://figshare.com/articles/journal_contribution/Securitisation_and_banking_risks_what_do_we_know_so_far_/9500771 CC BY-NC-ND 4.0
institution Loughborough University
collection Figshare
topic Other commerce, management, tourism and services not elsewhere classified
Financial crisis
Bank risk taking
Securitization
Business and Management not elsewhere classified
spellingShingle Other commerce, management, tourism and services not elsewhere classified
Financial crisis
Bank risk taking
Securitization
Business and Management not elsewhere classified
Alper Kara
Aydin Ozkan
Yener Altunbas
Securitisation and banking risks: what do we know so far?
description Purpose – Bank securitisation is deemed to have been a major contributing factor to the 2007/2008 financial crises via fuelling credit growth accompanied by lower banks’ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable as risk was more easily diversified, managed and allocated economy-wide. The purpose of this paper is to review the extant literature to explore the so far generated knowledge on the impact of securitisation on banking risks. In particular, the authors examine the theoretical arguments and empirical studies on securitisation and banking risks before and after the global financial crisis of 2007/2008. Design/methodology/approach – Review and discussion of the literature. Findings – Theoretical literature univocally accentuate the undesirable consequences of securitisation, which may promote retention of riskier loans, undermine banks’ screening and monitoring incentives and enhance banks’ risk appetite. However, empirical evidence does not uniformly support the theoretical conclusions. If banks are securitisation active they lend more to risky borrowers, have less diversified portfolios and hold less capital, retain riskier loans and are aggressive in loan pricing. Others argue that securitisation reduces banks insolvency risk, increases profitability, provides liquidity and leads to greater supply of loans. Mortgage securitisation is an area where there is consistent evidence of bank risk taking via securitisation. Originality/value – The paper identifies open issues for future research.
format Default
Article
author Alper Kara
Aydin Ozkan
Yener Altunbas
author_facet Alper Kara
Aydin Ozkan
Yener Altunbas
author_sort Alper Kara (1251537)
title Securitisation and banking risks: what do we know so far?
title_short Securitisation and banking risks: what do we know so far?
title_full Securitisation and banking risks: what do we know so far?
title_fullStr Securitisation and banking risks: what do we know so far?
title_full_unstemmed Securitisation and banking risks: what do we know so far?
title_sort securitisation and banking risks: what do we know so far?
publishDate 2016
url https://hdl.handle.net/2134/21693
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