Bankruptcy Remoteness and Incentive‐Compatible Securitization

25 Pages Posted: 7 Apr 2015

See all articles by Gabriella Chiesa

Gabriella Chiesa

University of Bologna - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May/August 2015

Abstract

Securitization involves both the risk allocation and claims' transferability/liquidity. A key ingredient of liquidity/claim‐transferability is bankruptcy remoteness of the securitized assets. We analyze the implications of the bankruptcy‐remoteness created by securitization on risk allocation and bank monitoring incentives, in relation to the bank's liability structure; and the regulatory/policy issues it gives rise to. We demonstrate that (1) the need for regulation arises when securitization (and bankruptcy remoteness) coexists with deposit‐taking; and (2) regulation that imposes the same capital requirements on a bank irrespective of whether loans are securitized or not will have welfare implications. We also explain the need for narrow‐securitized banking.

Keywords: Securitization, Bankruptcy remoteness, Risk transfer

JEL Classification: G21, G28, K22, D86

Suggested Citation

Chiesa, Gabriella, Bankruptcy Remoteness and Incentive‐Compatible Securitization (May/August 2015). Financial Markets, Institutions & Instruments, Vol. 24, Issue 2-3, pp. 241-265, 2015, Available at SSRN: https://ssrn.com/abstract=2591153 or http://dx.doi.org/10.1111/fmii.12029

Gabriella Chiesa (Contact Author)

University of Bologna - Department of Economics ( email )

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