Securitization and Bank Performance: Some Empirical Evidence on US Commercial Banks

Abstract

By using securitization, a bank is able to lower its cost of funding, improve risk management and increase profitability.The key to the realization of the potential benefits of securitization lies in the quality of the underlying receivables, which, in turn, is directly related to the underwriting and credit risk management employed.

Therefore, as evidenced during the recent financial crisis, securitization might have adverse implications for bank performance. Based on a sample of US commercial banks over the period 2001-2008, univariate analysis indicates that securitizing banks are more profitable, but with higher credit risk exposure and higher cost of funding. Our evidence raises important questions about banks motives for increasing securitization activities and consequent implications.

Keywords: Securitization, Bank performance

JEL Classification: G21, G32