The Impacts of Securitization on US Bank Holding Companies

Abstract

We use data from 2001-2007 to assess the impact of mortgage and other forms of asset securitization on the insolvency risk, profitability, and leverage ratios of US bank holding companies. Using 3 different estimation techniques, we find that banks use mortgage securitization to reduce insolvency risk and increase leverage. We also find that securitization techniques increase bank profitability. Our results suggest that securitization techniques have played a positive role. This suggests that the current turmoil in mortgage credit and securitization markets is related to recent excesses in those markets, and that securitization activity will resume after those excesses are cleared up.

Keywords: Banking, Securitization

JEL Classification: G21, G32