Securitisation and Financial Stability

24 Pages Posted: 27 Apr 2009

See all articles by Hyun Song Shin

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: 0000

Abstract

A widespread opinion before the credit crisis of 2007/8 was that securitisation enhances financial stability by dispersing credit risk. After the credit crisis, securitisation was blamed for allowing the hot potato of bad loans to be passed to unsuspecting investors. Both views miss the endogeneity of credit supply. Securitisation enables credit expansion through higher leverage of the financial system as a whole. Securitisation by itself may not enhance financial stability if the imperative to expand assets drives down lending standards. The hot potato of bad loans sits in the financial system on the balance sheets of large banks rather than being sold on to final investors, since the aim of financial intermediaries is to expand lending in order to utilise slack in balance sheet capacity.

Suggested Citation

Shin, Hyun Song, Securitisation and Financial Stability (0000). The Economic Journal, Vol. 119, Issue 536, pp. 309-332, March 2009. Available at SSRN: https://ssrn.com/abstract=1376004 or http://dx.doi.org/10.1111/j.1468-0297.2008.02239.x

Hyun Song Shin (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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