Securitization Without Risk Transfer
Viral V. Acharya
New York University - Leonard N. Stern School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance
New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)
Board of Governors of the Federal Reserve System
October 20, 2011
AFA 2010 Atlanta Meetings Paper
We analyze asset-backed commercial paper conduits, which experienced a shadow-banking “run” and played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets worth $1.3 trillion while insuring the newly securitized assets using explicit guarantees. We show that regulatory arbitrage was the main motive behind setting up conduits: the guarantees were structured so as to reduce regulatory capital requirements, more so by banks with less capital, and while still providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that conduits provided little risk transfer during the 'run': losses from conduits remained with banks rather than outside investors and banks with more exposure to conduits had lower stock returns.
Number of Pages in PDF File: 51
Keywords: Asset-backed commercial paper (ABCP), shadow banking, regulatory arbitrage, bank capital, conduits, Structured investment vehicle
JEL Classification: G01, G21, G28
Date posted: March 22, 2009 ; Last revised: February 25, 2012
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