Regulation, CDO Exposures, and Debt Guarantees through the Financial Crisis

31 Pages Posted: 7 Feb 2023

See all articles by Stephen Matteo Miller

Stephen Matteo Miller

George Mason University - Mercatus Center

Date Written: January 2023

Abstract

Collateralized debt obligations with asset backed securities as collateral (ABS CDOs) often get
overshadowed in debates over causes of large commercial bank holding company (BHC) distress
during the 2007–2009 crisis. For BHCs, the Recourse Rule made holding the highest rated ABS CDO tranches more favorable by lowering required capital. Large BHCs that commented on preliminary Recourse Rule proposals or issued CDOs had higher average estimated debt guarantees after Q2 2008, reaching a peak of nearly $3.49 billion or $6.73 billion, respectively. From Q2 2008 to Q1 2009, among trading assets, only CDO holdings have a large positive association with higher estimated debt guarantees for BHCs.

Keywords: bank capital requirements, collateralized debt obligations, debt guarantees, too-big-to-fail subsidies

JEL Classification: D78, G01, G18, G21, G28, H81

Suggested Citation

Miller, Stephen Matteo, Regulation, CDO Exposures, and Debt Guarantees through the Financial Crisis (January 2023). Mercatus Research Paper, Available at SSRN: https://ssrn.com/abstract=4349964 or http://dx.doi.org/10.2139/ssrn.4349964

Stephen Matteo Miller (Contact Author)

George Mason University - Mercatus Center ( email )

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
55
Abstract Views
329
Rank
718,597
PlumX Metrics