Working Paper: NBER ID: w11983
Authors: Elena Loutskina; Philip E. Strahan
Abstract: This paper shows that securitization reduces the influence of bank financial condition on loan supply. Low-cost funding and increased balance-sheet liquidity raise bank willingness to approve mortgages that are hard to sell (jumbo mortgages), while having no effect on their willingness to approve mortgages easy to sell (non-jumbos). Thus, the increasing depth of the mortgage secondary market fostered by securitization has reduced the impact of local funding shocks on credit supply. By extension, securitization has weakened the link from bank funding conditions to credit supply in aggregate, thereby mitigating the real effects of monetary policy.
Keywords: Securitization; Loan Supply; Mortgage Acceptance Rates
JEL Codes: G2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| bank financial conditions (G21) | acceptance rates of nonjumbo mortgages (G21) |
| bank financial conditions (G21) | acceptance rates of jumbo mortgages (G21) |
| securitization (G10) | acceptance rates of nonjumbo mortgages (G21) |
| liquidity from securitization (G33) | link between bank's financial condition and willingness to supply credit (E44) |
| lower funding costs and higher balance sheet liquidity (G21) | approval of jumbo loans (G21) |
| growth of secondary markets (G10) | effects of monetary policy on real economic activity (E52) |