Securitization and Bank Performance

29 Pages Posted: 20 Oct 2009 Last revised: 28 Oct 2009

See all articles by Anna Sarkisyan

Anna Sarkisyan

University of Essex - Essex Business School

Barbara Casu

City University London - Sir John Cass Business School

Andrew Clare

City University London - Sir John Cass Business School

Steve Thomas

City University London - Sir John Cass Business School

Date Written: October 19, 2009

Abstract

Theory suggests that securitization provides financial institutions with an opportunity to lower the cost of funding; improve credit risk management and increase profitability. In practice, as evidence during the recent crisis, it might lead to adverse consequences through a number of indirect channels. Therefore, the net impact of securitization on bank performance is ambiguous. This study aims to evaluate whether banks improve their performance through the use of securitization markets by applying a propensity score matching approach. In other words, we build a counterfactual group of banks to assess what would have happened to the securitizing banks had they not securitized. Using US commercial banking data from 2001 to 2008, univariate analysis indicates that securitizing banks are, on average, more profitable institutions, with higher credit risk exposure and higher cost of funding. However, the propensity score matching analysis does not provide evidence of significant causal effects of securitization on the performance of banks. Therefore, securitization does not seem to outperform alternative funding, risk management and profitability improvement techniques. Our evidence raises important questions about banks motives for increasing securitization activities and consequent implications for banking systems.

Keywords: Securitization, Bank Performance, Propensity Score Matching

JEL Classification: G21, G32

Suggested Citation

Sarkisyan, Anna and Casu, Barbara and Clare, Andrew D. and Thomas, Stephen H., Securitization and Bank Performance (October 19, 2009). Available at SSRN: https://ssrn.com/abstract=1490925 or http://dx.doi.org/10.2139/ssrn.1490925

Anna Sarkisyan

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=2004

Barbara Casu (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Andrew D. Clare

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Stephen H. Thomas

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)

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