Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences

22 Pages Posted: 27 Sep 2016

See all articles by Andreas Pescatori

Andreas Pescatori

International Monetary Fund (IMF)

Juan A. Solé

International Monetary Fund (IMF)

Date Written: March 2016

Abstract

We show evidence that interest rate hikes slowdown loan growth but lead intermediation to migrate from banks' balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily byb private-label securitization. On the other hand, the government sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.

Keywords: Monetary policy; monetary policy shocks; VAR; proxy VAR; financialintermediation; shadow banking; securitization; GSE; private-label ABS issuers.

JEL Classification: E50, E43, E52, G20, G21

Suggested Citation

Pescatori, Andreas and Sole, Juan A., Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences (March 2016). IMF Working Paper No. 16/76. Available at SSRN: https://ssrn.com/abstract=2844153

Andreas Pescatori (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Juan A. Sole

International Monetary Fund (IMF) ( email )

700 19th Street N.W.
Washington, DC 20431
United States

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