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|Title: ||Securitisation and banking risks: what do we know so far?|
|Authors: ||Kara, Alper|
|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.|
– 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.
– Review and discussion of the literature.
– 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.
– The paper identifies open issues for future research.|
|Description: ||This paper is embargoed until June 2018.|
|Version: ||Accepted for publication|
|Publisher Link: ||http://dx.doi.org/10.1108/RBF-07-2014-0039|
|Appears in Collections:||Closed Access (Business School)|
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