Lending Relationships and Credit Rationing: The Impact of Securitization

39 Pages Posted: 20 Oct 2012

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

Multiple version iconThere are 4 versions of this paper

Date Written: 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 Fernandez, Francisco Rodriguez, Lending Relationships and Credit Rationing: The Impact of Securitization (2012). Available at SSRN: https://ssrn.com/abstract=2164218 or http://dx.doi.org/10.2139/ssrn.2164218

Santiago Carbo-Valverde

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 (Contact Author)

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

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

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