Banks' Capital, Securitization and Credit Risk: An Empirical Evidence for Canada

Insurance and Risk Management, vol. 75(4), January 2008, 459-485

37 Pages Posted: 11 Mar 2003 Last revised: 14 May 2014

See all articles by Georges Dionne

Georges Dionne

HEC Montreal - Department of Finance

Tarek M. Harchaoui

Statistics Canada - Microeconomic Analysis Division

Date Written: January 1, 2003

Abstract

This paper is the first attempt that empirically investigates the relationship between banks capital, securitization and risk in the context of the rapid growth of off-balance-sheet activities in the Canadian financial sector. The evidence over the 1988-1998 period indicates that a) securitization has negative effects on both Tier 1 and Total risk-based capital ratios, and b) there exists a positive statistical link between securitization and banks' risk. These results seem to accord with Kim and Santomero (1988) who concluded that banks might be induced to shift to more risky assets under the current capital requirements for credit risk.

Keywords: Securitization, Credit Risk, Capital Regulation, Basel Committee, Banks' Regulation

JEL Classification: G18, G21, G28

Suggested Citation

Dionne, Georges and Harchaoui, Tarek M., Banks' Capital, Securitization and Credit Risk: An Empirical Evidence for Canada (January 1, 2003). Insurance and Risk Management, vol. 75(4), January 2008, 459-485. Available at SSRN: https://ssrn.com/abstract=369501 or http://dx.doi.org/10.2139/ssrn.369501

Georges Dionne (Contact Author)

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6596 (Phone)
514-340-5019 (Fax)

HOME PAGE: http://www.hec.ca/gestiondesrisques/

Tarek M. Harchaoui

Statistics Canada - Microeconomic Analysis Division ( email )

24 Floor - R.H.Coats Building
Tunney's Pasture
Ottawa, Ontaria K1A 0T6
Canada
613-951-9856 (Phone)

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