Banking and Securitization

81 Pages Posted: 6 Mar 2007 Last revised: 21 Mar 2008

See all articles by Wenying Jiangli

Wenying Jiangli

U.S. Federal Deposit Insurance Corporation (FDIC)

Matt Pritsker

Federal Reserve Bank of Boston

Peter Raupach

Deutsche Bundesbank - Research Department

Date Written: December 18, 2007

Abstract

We present a monitoring-based model of banking in which banks can fund their activities with debt, equity, loan sales, and asset securitization. Our results show that banks that have the opportunity to fund themselves via securitization, favor securitization over loan sales. When banks fund themselves with securitization, they have higher profitability, and, depending on the securitization method, higher leverage and lower risk of bank insolvency. We predict that banks with high franchise value will favor securitization methods that reduce bank insolvency, and empirically test this prediction of our theory. Our preliminary evidence is supportive of the theory that securitization reduces risk and increases leverage, but insignificantly improves bank profitability.

Keywords: Banking, Securitization, Loan Sales

JEL Classification: G21, G32

Suggested Citation

Jiangli, Wenying and Pritsker, Matthew G. and Raupach, Peter, Banking and Securitization (December 18, 2007). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=967895 or http://dx.doi.org/10.2139/ssrn.967895

Wenying Jiangli

U.S. Federal Deposit Insurance Corporation (FDIC) ( email )

Washington, DC 20429
United States

Matthew G. Pritsker (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States
617-973-3191 (Phone)

Peter Raupach

Deutsche Bundesbank - Research Department ( email )

Wilhelm-Epstein-Str. 14
Frankfurt, 60431
Germany
+49 69 9566 8536 (Phone)

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