Trustee Reputation in Securitization: When Does It Matter?

36 Pages Posted: 16 Nov 2016 Last revised: 28 Feb 2018

See all articles by Solomon Deku

Solomon Deku

Hull University Business School (HUBS)

Alper Kara

University of Huddersfield

David Marques-Ibanez

European Central Bank (ECB)

Date Written: September 1, 2016

Abstract

We consider the role of trustees – who are nominated to protect the interests of investors – in securitization pricing and whether investors rely on them to mitigate risks. In particular, we examine the effect of trustee reputation on initial yield spreads of European mortgage-backed security (MBS) issuances between 1999 and the first half of 2007. We find that engaging reputable trustees led to lower spreads during the credit boom period prior to the 2007-2009 financial crisis. Our findings suggest that trustees’ reputation was deemed more important when information asymmetries in credit markets were larger and risk assessment became more challenging.

Keywords: securitization, MBS, trustee reputation, 2007-2009 financial crisis

JEL Classification: G21, G28

Suggested Citation

Deku, Solomon and Kara, Alper and Marques-Ibanez, David, Trustee Reputation in Securitization: When Does It Matter? (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2869724 or http://dx.doi.org/10.2139/ssrn.2869724

Solomon Deku

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Alper Kara (Contact Author)

University of Huddersfield ( email )

David Marques-Ibanez

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
49 6913 44 6460 (Phone)
49 6913 44 6460 (Fax)

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