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
Date Written: January 1, 2003
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: Suggested Citation