Lending Relationships and Credit Rationing: The Impact of Securitization

38 Pages Posted: 14 Sep 2012 Last revised: 22 Jan 2013

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

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

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Multiple version iconThere are 4 versions of this paper

Date Written: September 13, 2012

Abstract

Banks have been heavily involved in securitization. We study whether the involvedness of a firm’s main bank into different types of securitization activity – asset backed securities (ABS) and covered bonds – influences credit supply before and during the 2007-8 financial crisis. Both types of securitization allow the bank to generate liquidity. To the extent that ABS activity lowers lending standards in normal times, banks with more ABS activity may reduce their lending more in crisis times as an ex-post effect of a previously higher risk adoption. Employing a disequilibrium model to identify credit rationing, we find that a longer relationship with a firm’s main bank considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firm’s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firm’s main bank aggravates these firm’s credit rationing in crisis periods.

Keywords: lending relationships, financial crisis, securitization

JEL Classification: G21

Suggested Citation

Carbo-Valverde, Santiago and Degryse, Hans and Rodriguez-Fernandez, Francisco, Lending Relationships and Credit Rationing: The Impact of Securitization (September 13, 2012). Midwest Finance Association 2013 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=2146137 or http://dx.doi.org/10.2139/ssrn.2146137

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

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Francisco Rodriguez-Fernandez

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

Granada
Spain

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