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Nonrecourse Financing and Securitization

Journal of Financial Intermediation 21 (2012) 659-693

58 Pages Posted: 4 Apr 2012 Last revised: 31 Aug 2012

Mami Kobayashi

Ritsumeikan University; Ritsumeikan University

Hiroshi Osano

Kyoto University - Institute of Economic Research

Date Written: April 2, 2012


We consider the role of the nonrecourse financing of securitization by a financial institution (FI). Our model suggests that even though the FI has the opportunity to provide liquidity support afterward, it is optimal for the FI to use the nonrecourse financing of securitization initially, because the nonrecourse security makes liquidation of the original asset more attractive for an FI that knows that the original asset is bad. However, our model also predicts that the nonrecourse financing of securitization, together with short-term maturity financing, forces the financial system to perform inefficiently in handling troubled loans and causes problems with inefficient liquidity support and overinvestment under certain conditions, despite the nonrecourse property of securitization. The theoretical results provide empirical implications for recent problems with securitized and structured finance in the United States and Europe.

Keywords: asset-backed securities, financial distress, liquidity, maturity mismatch, structured finance

JEL Classification: D82, D86, G21, G23, G24, G33

Suggested Citation

Kobayashi, Mami and Osano, Hiroshi, Nonrecourse Financing and Securitization (April 2, 2012). Journal of Financial Intermediation 21 (2012) 659-693. Available at SSRN: or

Mami Kobayashi

Ritsumeikan University ( email )


Ritsumeikan University ( email )

2-150 Iwakura-cho
Ibaraki, Osaka 5678570

Hiroshi Osano (Contact Author)

Kyoto University - Institute of Economic Research ( email )

Kyoto 606-8501
+81-75-753-7131 (Phone)
+81-75-753-7138 (Fax)

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