Working Paper: CEPR ID: DP9138
Authors: Santiago Carb Valverde; Hans Degryse; Francisco Rodriguez-Fernandez
Abstract: Banks have been heavily involved in securitization. We study whether the involvedness of a firm?s main bank into different types of securitization activity -- asset backed securities (ABS) and covered bonds -- influences credit supply before and during the 2007-8 financial crisis. Both types of securitization allow the bank to generate liquidity. To the extent that ABS activity lowers lending standards in normal times, banks with more ABS activity may reduce their lending more in crisis times as an ex-post effect of a previously higher risk adoption. Employing a disequilibrium model to identify credit rationing, we find that a longer relationship with a firm?s main bank considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firm?s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firm?s main bank aggravates these firm?s credit rationing in crisis periods.
Keywords: financial crisis; lending relationships; securitization
JEL Codes: G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank involvement in securitization (G21) | credit constraints (E51) |
| bank involvement in securitization (G21) | credit supply (E51) |
| ABS issuance (Q52) | credit rationing (G21) |
| covered bonds issuance (H74) | credit rationing (G21) |
| ABS issuance (Q52) | liquidity (E41) |
| credit rationing (G21) | credit availability (G21) |