Bank Capital, Securitization and Credit Risk: An Empirical Evidence

Insurance and Risk Management, Vol. 75 (4), 459-485, 2008

28 Pages Posted: 15 May 2014

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Tarek M. Harchaoui

Statistics Canada - Microeconomic Analysis Division

Date Written: January 3, 2008

Abstract

This paper is one of the first attempts to conduct an empirical investigation of the relationship between bank capital, securitization and bank risk-taking in a context of the rapid growth in off-balance-sheet activities. The data come from the Canadian financial sector. Evidence from the 1988-1998 period indicates that: (a) securitization has a negative statistical link with both current Tier 1 and Total risk-based capital ratios, and (b) there exists a positive statistical link between securitization and bank risk-taking. Profit-risk measure is more sensitive than loss-risk measure to the variation in securitization activity. These results seem to agree, during the studied period, with models indicating that banks might be induced to shift to more risky assets under the current capital requirements for credit risk because the regulatory capital levels are considered too high.

Keywords: Securitization, credit risk, capital regulation, Canadian financial sector, bank regulation

JEL Classification: G18, G21, G28

Suggested Citation

Dionne, Georges and Harchaoui, Tarek M., Bank Capital, Securitization and Credit Risk: An Empirical Evidence (January 3, 2008). Insurance and Risk Management, Vol. 75 (4), 459-485, 2008, Available at SSRN: https://ssrn.com/abstract=2436636

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Tarek M. Harchaoui

Statistics Canada - Microeconomic Analysis Division ( email )

24 Floor - R.H.Coats Building
Tunney's Pasture
Ottawa, Ontaria K1A 0T6
Canada
613-951-9856 (Phone)

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