Asymmetric Information and AHE Securitization of SME Loans

42 Pages Posted: 10 Jan 2017

See all articles by Ugo Albertazzi

Ugo Albertazzi

ECB -DG Monetary Policy

Margherita Bottero

Bank of Italy

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR)

Date Written: January 2017

Abstract

Using credit register data for loans to Italian firms we test for the presence of asymmetric information in the securitization market by looking at the correlation between the securitization (risk-transfer) and the default (accident) probability. We can disentangle the adverse selection from the moral hazard component for the many firms with multiple bank relationships. We find that adverse selection is widespread but that moral hazard is confined to weak relationships, indicating that a strong relationship is a credible enough commitment to monitor after securitization. Importantly, the selection of which loans to securitize based on observables is such that it largely offsets the (negative) effects of asymmetric information, rendering the overall unconditional quality of securitized loans significantly better than that of non-securitized ones. Thus, despite the presence of asymmetric information, our results do not accord with the view that credit-risk transfer leads to lax credit standards.

Keywords: securitization, SME loans, moral hazard, adverse selection

JEL Classification: D82, G21

Suggested Citation

Albertazzi, Ugo and Bottero, Margherita and Gambacorta, Leonardo and Ongena, Steven R. G., Asymmetric Information and AHE Securitization of SME Loans (January 2017). BIS Working Paper No. 601. Available at SSRN: https://ssrn.com/abstract=2893588

Ugo Albertazzi (Contact Author)

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Margherita Bottero

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Steven R. G. Ongena

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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