The Spillover Effect of Consolidating Securitization Entities on Small Business Lending

The Accounting Review, Forthcoming

52 Pages Posted: 6 Feb 2016 Last revised: 26 Jan 2021

See all articles by Yiwei Dou

Yiwei Dou

New York University (NYU) - Department of Accounting

Date Written: January 25, 2021

Abstract

I investigate how the consolidation of securitization entities under SFAS 166 and 167 spills over to banks’ supply of small business loans, which are rarely securitized in the United States. This spillover operates through two channels. (1) In the leverage channel, consolidating banks downsize their entire loan portfolios, both small business loans and other loans, in response to increased leverage after consolidation. (2) In the risk management channel, consolidating banks adjust the mix of loans to maintain optimal diversification. The adjustment can increase the supply of small business loans when their performance covaries positively with the performance of other loans. I find that on average, banks that consolidate more securitized assets reduce small business lending; consequently, counties with a greater market share of consolidating banks experience slower growth in small businesses. I also identify a small group of banks with sufficiently large positive performance covariance that increase small business lending.

Keywords: SFAS 166 and 167; off‒balance sheet; spillovers; leverage; risk management; performance covariance; small business lending

JEL Classification: M4; G21

Suggested Citation

Dou, Yiwei, The Spillover Effect of Consolidating Securitization Entities on Small Business Lending (January 25, 2021). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2727958 or http://dx.doi.org/10.2139/ssrn.2727958

Yiwei Dou (Contact Author)

New York University (NYU) - Department of Accounting ( email )

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Suite 10-180
New York, NY 10012
United States

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