What is the Value of Recourse to Asset Backed Securities? A Clinical Study of Credit Card Banks

Federal Reserve Bank of Philadelphia Working Paper No. 03-6

48 Pages Posted: 27 Jul 2004

See all articles by Eric James Higgins

Eric James Higgins

Kansas State University - College of Business Administration

Joseph R. Mason

Louisiana State University - Ourso School of Business; University of Pennsylvania - Wharton Financial Institutions Center

Date Written: April 2003

Abstract

The present paper uses data from revolving credit card securitizations to show that, conditional on being in a position where implicit recourse has become necessary and actually providing that recourse, recourse to securitized debt may benefit short- and long-term stock returns, and long-term operating performance of sponsors. The paper suggests that this result may come about because those sponsors providing the recourse do not seem to be extreme default or insolvency risks. However, sponsors providing recourse do experience an abnormal delay in their normal issuance cycle around the event. Hence, it appears that the asset-backed securities market is like the commercial paper market, where a firm's ability to issue is directly correlated with credit quality. Therefore, although in violation of regulatory guidelines and FASB140, recourse may have beneficial effects for sponsors by revealing that the shocks that made recourse necessary are transitory.

Keywords: Asset-backed financing, credit cards

Suggested Citation

Higgins, Eric James and Mason, Joseph R., What is the Value of Recourse to Asset Backed Securities? A Clinical Study of Credit Card Banks (April 2003). Federal Reserve Bank of Philadelphia Working Paper No. 03-6, Available at SSRN: https://ssrn.com/abstract=569782 or http://dx.doi.org/10.2139/ssrn.569782

Eric James Higgins (Contact Author)

Kansas State University - College of Business Administration ( email )

117 D Calvin Hall
Manhattan, KS 66506
United States
(785)-532-3936 (Phone)

Joseph R. Mason

Louisiana State University - Ourso School of Business

2900 Business Education Complex
Baton Rouge, LA 70803
United States
202-683-8909 (Phone)

University of Pennsylvania - Wharton Financial Institutions Center ( email )

3641 Locust Walk
Philadelphia, PA 19104-6218
United States

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