Securitisation and Lending Standards: Evidence from the Wholesale Loan Market

Abstract:     
We investigate the effect of securitization activity on banks’ lending standards using evidence from pricing behaviour on the syndicated loan market. We find that originating banks more active on the securitization market are also more aggressive on their loan pricing practices. This result – coupled with earlier evidence indicating that securitization lead to an augmented volume of credit – suggest that securitization activity has lead to more active risk-taking by banks. Macroeconomic factors also play a large role in explaining the impact of securitization on bank lending standards: Wholesale pricing by securitizing banks loosened in the years prior to the recent financial crisis and tightened considerably during the crisis period. As a continuum of the paper currently we are examining whether those loans which are eventually securitized are priced more aggressively by banks by using a unique European dataset from trustee’s data.

Number of Pages in PDF File: 30

Keywords: Securitisation, Bank Risk Taking, Syndicated Loans, Recent Financial Crisis

JEL Classification: G21, G28

working papers series