Working Paper: CEPR ID: DP11785
Authors: Ugo Albertazzi; Margherita Bottero; Leonardo Gambacorta; Steven Ongena
Abstract: Using credit register data for loans to Italian firms we test for the presence of asymmetric information in the securitization market by looking at the correlation between the securitization (risk-transfer) and the default (accident) probability. We can disentangle the adverse selection from the moral hazard component for the many firms with multiple bank relationships. We find that adverse selection is widespread but that moral hazard is confined to weak relationships, indicating that a strong relationship is a credible enough commitment to monitor after securitization. Importantly, the selection of which loans to securitize based on observables is such that it largely offsets the (negative) effects of asymmetric information, rendering the overall unconditional quality of securitized loans significantly better than that of non-securitized ones. Thus, despite the presence of asymmetric information, our results do not accord with the view that credit-risk transfer leads to lax credit standards.
Keywords: securitization; SME loans; moral hazard; adverse selection
JEL Codes: D82; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asymmetric information (D82) | securitization of SME loans (G21) |
| adverse selection (D82) | securitization of SME loans (G21) |
| observable characteristics indicating higher quality (L15) | securitization of SME loans (G21) |
| moral hazard (G52) | monitoring post-securitization (G18) |
| weak firm-bank relationships (F65) | moral hazard (G52) |
| stronger relationships (L14) | better monitoring post-securitization (G18) |
| asymmetric information (D82) | quality of securitized loans (G21) |
| securitization of SME loans (G21) | quality of securitized loans (G21) |