The Securitization Flash Flood

52 Pages Posted: 27 Jul 2016 Last revised: 4 Jun 2024

See all articles by Kandarp Srinivasan

Kandarp Srinivasan

Northeastern University - D’Amore-McKim School of Business

Date Written: June 20, 2019

Abstract

This paper highlights a connection between stability of a bank's funding sources (debt claims) and the illiquidity of assets backing those claims. Using a natural experiment and hand-collected data on over 5,000 repurchase contracts, the paper shows that a shock that decreased illiquidity of private-label MBS resulted in a greater proportion of MBS held on bank balance sheets, while financed by unstable funding sources (short term repo debt). This finding is relevant to the recent banking crisis (SVB collapse of March 2023) where losses on a bank's liquid assets led to a run by uninsured ("flighty") depositors financing those assets.

Keywords: securitization, bankruptcy safe harbor, repos, collateral, banking, financial crisis JEL Classification: G2, K2

JEL Classification: G21, G23

Suggested Citation

Srinivasan, Kandarp, The Securitization Flash Flood (June 20, 2019). Available at SSRN: https://ssrn.com/abstract=2814717 or http://dx.doi.org/10.2139/ssrn.2814717

Kandarp Srinivasan (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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