Securitization, Bank Lending and Credit Quality: The Case of Spain

44 Pages Posted: 25 Apr 2011

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Bangor Business School; Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF)

David Marques-Ibanez

European Central Bank (ECB)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Date Written: April 4, 2011

Abstract

While the 2007-2010 financial crisis has hit a variety of countries asymmetrically, the case of Spain is particularly illustrative: this country experienced a pronounced housing bubble partly funded via spectacular developments in its securitization markets leading to looser credit standards and subsequent financial stability problems. We analyze the sequential deterioration of credit in this country considering rating changes in individual securitized deals and on balance sheet bank conditions. Using a sample of 20,286 observations on securities and rating changes from 2000Q1 to 2010Q1 we build a model in which loan growth, on balancesheet credit quality and rating changes are estimated simultaneously. Our results suggest that loan growth significantly affects on balance-sheet loan performance with a lag of at least two years. Additionally, loan performance is found to lead rating changes with a lag of four quarters. Importantly, bank characteristics (in particular, observed solvency, cash flow generation and cost efficiency) also affect ratings considerably. Additionally, these other bank characteristics seem to have a higher weight in the rating changes of securities issued by savings banks as compared to those issued by commercial banks.

Keywords: securitization, lending, risk, financial instability

JEL Classification: G21, G12

Suggested Citation

Carbo-Valverde, Santiago and Marques-Ibanez, David and Rodriguez-Fernandez, Francisco, Securitization, Bank Lending and Credit Quality: The Case of Spain (April 4, 2011). ECB Working Paper No. 1329. Available at SSRN: https://ssrn.com/abstract=1802358

Santiago Carbo-Valverde (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Universidad Complutense de Madrid (UCM) - Colegio Universitario de Estudios Financieros (CUNEF) ( email )

Serrano Anguita 9
Madrid, Madrid 28004
Spain

David Marques-Ibanez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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