Download This PaperSafe Collateral, Arm's-Length Credit: Evidence from the Commercial Real Estate Mortgage Market
42 Pages Posted: 30 May 2017
Date Written: 2017-05
Abstract
When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating that the securitization channel, when available, funds safe collateral.
Keywords: Collateral, Commercial banking, Commercial real estate, Securitization
JEL Classification: G21, G24, G33
Suggested Citation: Suggested Citation
John Krainer
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Joseph Nichols
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
202-452-2983 (Phone)