Capital Incentives and Adequacy for Securitizations

50 Pages Posted: 10 Nov 2013

See all articles by Daniel Roesch

Daniel Roesch

University of Regensburg

Harald (Harry) Scheule

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network

Date Written: 2012

Abstract

This paper analyzes the capital incentives and adequacy of financial institutions for asset portfolio securitizations. The empirical analysis is based on US securitization rating and impairment data. The paper finds that regulatory capital rules for securitizations may be insufficient to cover implied losses during economic downturns such as the Global Financial Crisis. In addition, the rating process of securitizations provides capital arbitrage incentives for financial institutions and may further reduce regulatory capital requirements. These policy-relevant findings assume that the ratings assigned by rating agencies are correct and can be used to build a test for the ability of Basel capital regulations to cover downturn losses.

Keywords: Bank capital, Financial crisis, Rating, Securitization

JEL Classification: G20, G28, C51

Suggested Citation

Roesch, Daniel and Scheule, Harald, Capital Incentives and Adequacy for Securitizations (2012). Journal of Banking and Finance, Vol. 36, No. 3, 2012, pp. 733-748, Available at SSRN: https://ssrn.com/abstract=2349048 or http://dx.doi.org/10.2139/ssrn.2349048

Daniel Roesch (Contact Author)

University of Regensburg ( email )

Chair of Statistics and Risk Management
Faculty of Business, Economics and BIS
Regensburg, 93040
Germany

HOME PAGE: http://www-risk.ur.de/

Harald Scheule

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

P.O. Box 123
Broadway, NSW 2007
Australia

HOME PAGE: http://https://www.uts.edu.au/staff/harald.scheule

Financial Research Network ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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