Working Paper: NBER ID: w15730
Authors: Viral V. Acharya; Philipp Schnabl; Gustavo Suarez
Abstract: We analyze asset-backed commercial paper conduits which played a central role in the early phase of the financial crisis of 2007-09. We document that commercial banks set up conduits to securitize assets while insuring the newly securitized assets using credit guarantees. The credit guarantees were structured to reduce bank capital requirements, while providing recourse to bank balance sheets for outside investors. Consistent with such recourse, we find that banks with more exposure to conduits had lower stock returns at the start of the financial crisis; that during the first year of the crisis, asset-backed commercial paper spreads increased and issuance fell, especially for conduits with weaker credit guarantees and riskier banks; and that losses from conduits mostly remained with banks rather than outside investors. These results suggest that banks used this form of securitization to concentrate, rather than disperse, financial risks in the banking sector while reducing their capital requirements.
Keywords: Securitization; Asset-Backed Commercial Paper; Financial Crisis
JEL Codes: G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Strength of credit guarantees (H81) | Issuance of asset-backed commercial paper (G24) |
| Strength of credit guarantees (H81) | Spreads of asset-backed commercial paper (E44) |
| Credit guarantees (H81) | Realized risk transfer (G22) |
| Conduit assets (G19) | Bank losses (G21) |
| Conduit exposure (L74) | Bank stock returns (G21) |