Does Securitization of Corporate Loans Lead to Riskier Lending?

39 Pages Posted: 18 May 2011 Last revised: 3 Mar 2014

See all articles by Vitaly Bord

Vitaly Bord

Harvard University

João A. C. Santos

Federal Reserve Bank of New York

Date Written: March 2, 2014


We investigate whether the securitization of corporate loans affected banks’ lending standards. We find that during the boom years of the CLO business, loans sold to CLOs at the time of their origination underperform matched unsecuritized loans originated by the same bank. This finding is robust to loan- and borrower-specific controls, as well as the lender’s skin in the game. Banks’ use of lax underwriting standards appears to have contributed to the worse performance of the loans they sell to CLOs. We find that banks put less weight on the hard information on borrower risk available to them when they set interest rates on the loans they sell to CLOs, and that they retain less skin in the game on these loans. We also find that the median non-CLO syndicate participant retains a lower stake in securitized loans when compared to loans that are not securitized, suggesting that these investors, like lead banks, expected securitized loans to perform worse.

Keywords: Securitization, CLOs, Loan Performance, Loan Spreads

JEL Classification: G21, G23

Suggested Citation

Bord, Vitaly and Santos, João A. C., Does Securitization of Corporate Loans Lead to Riskier Lending? (March 2, 2014). Available at SSRN: or

Vitaly Bord

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

João A. C. Santos (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5583 (Phone)
212-720-8363 (Fax)


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