Are Covered Bonds a Substitute for Mortgage-Backed Securities?

42 Pages Posted: 8 Aug 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)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research

Multiple version iconThere are 2 versions of this paper

Date Written: August 7, 2013

Abstract

Covered bonds and mortgage-backed securities both allow mortgages to be financed with duration-matched bonds. Given the problems in the MBS market during the financial crisis, some suggest that CB might be a substitute for MBS. Examining the use of CB and MBS in the U.S. and Europe, we find that the two are used for different purposes. Banks are more likely to use CB to help with liquidity needs while MBS are associated with risk management and agency problems. Introducing MBS to markets where only CB are common or CB to markets where only MBS are common could have large effects. Our estimates suggest that 20-25% of banks in Germany and the U.S. might switch from CB to MBS (Germany) or MBS to CB (U.S.) if access was similar to that in countries where both CB and MBS are common (Spain and the U.K.).

Suggested Citation

Carbo-Valverde, Santiago and Rodriguez-Fernandez, Francisco and Rosen, Richard J., Are Covered Bonds a Substitute for Mortgage-Backed Securities? (August 7, 2013). 26th Australasian Finance and Banking Conference 2013. Available at SSRN: https://ssrn.com/abstract=2307233 or http://dx.doi.org/10.2139/ssrn.2307233

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

Francisco Rodriguez-Fernandez (Contact Author)

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

Granada
Spain

Richard J. Rosen

Federal Reserve Bank of Chicago - Economic Research ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-6368 (Phone)
312-294-6262 (Fax)

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