Has the Risk Relevance of Securitization Changed in the Post-Crisis Period?

Posted: 23 Apr 2016

See all articles by Barbara Casu

Barbara Casu

City University London - Sir John Cass Business School

Anna Sarkisyan

University of Essex - Essex Business School

Date Written: April 21, 2016

Abstract

This study investigates the association between two measures of bank insolvency risk, the accounting-based z-score and the market-based Merton’s distance to default, and asset securitization as the financial crisis approached, unfolded, and in its aftermath. We consider both the risks arising from the exposure associated with off-balance sheet securitized assets and those deriving from retained interest, over the period 2001-2014. This allows us to investigate the temporal and cross-sectional variation in the risk relevance of securitization, overall and across major securitized asset classes (asset-backed and mortgage-backed securitization). We find that both measures of insolvency risk reflect the temporal and cross-sectional variation in the riskiness of securitized assets, although to a different extent, with the Merton’s distance to default reflecting the riskiness of outstanding mortgage securitization and related retained interest during the crisis period. We also find evidence of greater transparency of securitization risk exposure in the post-crisis period.

Keywords: Securitization, retained interest, insolvency risk, banks

JEL Classification: G21, G32

Suggested Citation

Casu, Barbara and Sarkisyan, Anna, Has the Risk Relevance of Securitization Changed in the Post-Crisis Period? (April 21, 2016). Available at SSRN: https://ssrn.com/abstract=2768216

Barbara Casu

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Anna Sarkisyan (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=2004

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

Paper statistics

Abstract Views
981
PlumX Metrics