Retained Interest in Securitisations and Implications for Bank Solvency

45 Pages Posted: 11 May 2013

See all articles by Anna Sarkisyan

Anna Sarkisyan

University of Essex - Essex Business School

Barbara Casu

City University London - Sir John Cass Business School

Date Written: April 17, 2013

Abstract

Using US bank holding company data for the period 2001 to 2007, this paper examines the relationship between banks' retained interests in securitisations and insolvency risk. We find that the provision of credit enhancements and guarantees significantly increases bank insolvency risk, albeit this varies for different levels of securitisation outstanding. Specifically, retained interests increase insolvency risk for “large-scale” securitisers while having a risk-reducing effect for “small-scale” and/or first-time securitisers. In addition, we find that the type of facility provided has implications for bank risk, with those with the most subordinated (first-loss) position having the greater impact on banks' default risk. Finally, we find that engagement in third-party securitisations has no significant effect on bank risk.

Keywords: securitisation, retained interests, insolvency risk

JEL Classification: G21, G32

Suggested Citation

Sarkisyan, Anna and Casu, Barbara, Retained Interest in Securitisations and Implications for Bank Solvency (April 17, 2013). ECB Working Paper No. 1538. Available at SSRN: https://ssrn.com/abstract=2252580

Anna Sarkisyan (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=2004

Barbara Casu

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
70
Abstract Views
420
rank
336,627
PlumX Metrics