Characteristics of Securitizations that Determine Issuers' Retention of the Risks of the Securitized Assets

Posted: 14 Apr 2008

See all articles by Stephen G. Ryan

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business

Chi-Chun Liu

National Chengchi University

Weitzu Chen

Soochow University

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Abstract

We hypothesize and provide evidence that characteristics of banks' loan securitizations accounted for as sales determine the extent to which banks retain the risks of the securitized loans. We show that banks retain more risk when: (1) the types of loans have higher and/or less externally verifiable credit risk, (2) the loans are closed-ended and banks retain larger contractual interests in the loans, and (3) the loans are closed-ended and banks retain types of contractual interests that more strongly concentrate the risk of the securitized loans. We show that the magnitude and type of retained contractual interests are not risk-relevant in revolving loan securitizations, because banks have more incentive and ability to provide implicit recourse, a non-contractual interest.

Keywords: Securitizations, banks, retained interests, implicit recourse, SFAS No. 140, risk

JEL Classification: G21, G32, M41

Suggested Citation

Ryan, Stephen G. and Liu, Chi-Chun and Chen, Weitzu, Characteristics of Securitizations that Determine Issuers' Retention of the Risks of the Securitized Assets. Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1118983

Stephen G. Ryan (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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New York, NY 10012-1118
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Chi-Chun Liu

National Chengchi University

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623
Taiwan

Weitzu Chen

Soochow University ( email )

No. 1 Shizi Street
Taipei, Jiangsu 215006
Taiwan

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