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Title: Securitisation and banking risks: what do we know so far?
Authors: Kara, Alper
Ozkan, Aydin
Altunbas, Yener
Keywords: Financial crisis
Bank risk taking
Issue Date: 2016
Publisher: © Emerald
Citation: KARA, A., OZKAN, A. and ALTUNBAS, Y., 2016. Securitisation and banking risks: what do we know so far? Review of Behavioural Finance, 8 (1), pp. 2-16.
Abstract: Purpose – Bank securitisation is deemed to have been a major contributing factor to the 2007/2008 financial crises via fuelling credit growth accompanied by lower banks’ credit standards. Yet, prior to the crisis a common view was that securitisation activity makes the financial system more stable as risk was more easily diversified, managed and allocated economy-wide. The purpose of this paper is to review the extant literature to explore the so far generated knowledge on the impact of securitisation on banking risks. In particular, the authors examine the theoretical arguments and empirical studies on securitisation and banking risks before and after the global financial crisis of 2007/2008. Design/methodology/approach – Review and discussion of the literature. Findings – Theoretical literature univocally accentuate the undesirable consequences of securitisation, which may promote retention of riskier loans, undermine banks’ screening and monitoring incentives and enhance banks’ risk appetite. However, empirical evidence does not uniformly support the theoretical conclusions. If banks are securitisation active they lend more to risky borrowers, have less diversified portfolios and hold less capital, retain riskier loans and are aggressive in loan pricing. Others argue that securitisation reduces banks insolvency risk, increases profitability, provides liquidity and leads to greater supply of loans. Mortgage securitisation is an area where there is consistent evidence of bank risk taking via securitisation. Originality/value – The paper identifies open issues for future research.
Description: This paper was accepted for publication in the journal Review of Behavioural Finance and the definitive published version is available at http://dx.doi.org/10.1108/RBF-07-2014-0039
Version: Accepted for publication
DOI: 10.1108/RBF-07-2014-0039
URI: https://dspace.lboro.ac.uk/2134/21693
Publisher Link: http://dx.doi.org/10.1108/RBF-07-2014-0039
ISSN: 1940-5979
Appears in Collections:Published Articles (Business)

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