Final Demand for Structured Finance Securities

57 Pages Posted: 19 Jan 2014 Last revised: 31 Aug 2014

See all articles by Craig B. Merrill

Craig B. Merrill

Brigham Young University; Wharton Financial Institutions Center

Taylor Nadauld

Brigham Young University

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: August 1, 2014

Abstract

Structured finance boomed during the run-up to the Financial Crisis. Existing explanations for this growth emphasize supply-side factors. Demand, however, was also encouraged by efforts to avoid regulatory capital requirements. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, assets which offered the highest yield per unit of required capital. The results are only evident in accounts subject to capital requirements and at firms with low levels of ex ante capital, consistent with regulation creating distortionary incentives fueling the demand for securitized assets.

Keywords: Demand, RMBS, Capital Requirements

JEL Classification: G01, G18, G21, G22, G23

Suggested Citation

Merrill, Craig B. and Nadauld, Taylor and Strahan, Philip E., Final Demand for Structured Finance Securities (August 1, 2014). Available at SSRN: https://ssrn.com/abstract=2380859 or http://dx.doi.org/10.2139/ssrn.2380859

Craig B. Merrill (Contact Author)

Brigham Young University ( email )

Provo, UT 84602
United States
(801) 422-4782 (Phone)

Wharton Financial Institutions Center ( email )

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Taylor Nadauld

Brigham Young University ( email )

Provo, UT 84602
United States

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
186
Abstract Views
1,754
rank
201,504
PlumX Metrics