Securitization, Risk Transferring and Financial Instability: The Case of Spain

37 Pages Posted: 16 Aug 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

Date Written: August 15, 2011

Abstract

Spain is particularly illustrative of the 2007-2010 financial crisis as it exemplifies in a vivid manner most of its core causes. This country experienced a pronounced housing bubble partly funded via spectacular expansion on its securitization markets leading to looser credit standards and subsequent financial stability problems. We analyze the sequential deterioration of credit quality in Spain considering rating changes in securitized deals. Using a sample of 20,286 observations from 2000Q1 to 2010Q1, we build a model at the instrument level in which the loan growth, on balance-sheet credit quality and rating changes are estimated simultaneously. Our results suggest that loan growth significantly affects loan performance with a lag of at least two years. Additionally, loan performance is found to explain rating changes with a lag of four quarters. Although securitized products are supposed to ensure remoteness from their originating bank, we also find that bank characteristics (in particular, observed solvency, cash flow generation and cost efficiency) affect ratings considerably. The impact of bank characteristics on rating changes is far stronger for securities issued by savings banks as compared with commercial banks.

Keywords: securitization, lending, risk, financial instability

JEL Classification: G21, G12

Suggested Citation

Carbo-Valverde, Santiago and Marques-Ibanez, David and Fernandez, Francisco Rodriguez, Securitization, Risk Transferring and Financial Instability: The Case of Spain (August 15, 2011). Available at SSRN: https://ssrn.com/abstract=1909751 or http://dx.doi.org/10.2139/ssrn.1909751

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

C/Rector López Argueta S/N
Granada, Granada 18071
Spain

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