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Securitization and credit quality in the European market

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  • Alper Kara
  • David Marques‐Ibanez
  • Steven Ongena

Abstract

We assess the effect of securitization activity on relative credit quality employing a uniquely detailed dataset from the euro‐denominated syndicated loan market. We find that at issuance, based on observable characteristics, banks do not seem to select and securitize loans of lower credit quality. Following securitization, the credit quality of borrowers whose loans are securitized deteriorates more than those in the control group. We find that poorer performance by borrowers of securitized loans seems to be connected to banks’ reduced monitoring incentives. Our results are supported by two additional methodologies and robust to controlling for predetermined borrower–lender matching.

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  • Alper Kara & David Marques‐Ibanez & Steven Ongena, 2019. "Securitization and credit quality in the European market," European Financial Management, European Financial Management Association, vol. 25(2), pages 407-434, March.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:2:p:407-434
    DOI: 10.1111/eufm.12168
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    4. Fenner, Arved & Klein, Philipp & Mössinger, Carina, 2021. "Better be careful: The replenishment of ABS backed by SME loans," Discussion Papers 30/2021, Deutsche Bundesbank.
    5. Bayeh, Antonio & Bitar, Mohammad & Burlacu, Radu & Walker, Thomas, 2021. "Competition, securitization, and efficiency in US banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 553-576.
    6. Sascha Tobias Wengerek & Benjamin Hippert & André Uhde, 2019. "Risk allocation through securitization - Evidence from non-performing loans," Working Papers Dissertations 58, Paderborn University, Faculty of Business Administration and Economics.
    7. Solomon Y. Deku & Alper Kara & Nodirbek Karimov, 2021. "Do investors value frequent issuers in securitization?," Review of Quantitative Finance and Accounting, Springer, vol. 57(4), pages 1247-1282, November.
    8. Emerson Abraham Jackson & Edmund Tamuke, 2022. "Credit Risk Management and the Financial Performance of Domiciled Banks in Sierra Leone: An Empirical Analysis," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 9(1), pages 139-164, January.
    9. Wengerek, Sascha Tobias & Hippert, Benjamin & Uhde, André, 2022. "Risk allocation through securitization: Evidence from non-performing loans," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 48-64.
    10. Gürtler, Marc & Koch, Florian, 2021. "Multidimensional skin in the game," Journal of Mathematical Economics, Elsevier, vol. 97(C).
    11. Arif, Ahmed, 2020. "Effects of securitization and covered bonds on bank stability," Research in International Business and Finance, Elsevier, vol. 53(C).
    12. van der Plaat, Mark T., 2021. "How to Measure Securitization: A Structural Equation Approach," MPRA Paper 109735, University Library of Munich, Germany.
    13. Klein, Philipp & Mössinger, Carina & Pfingsten, Andreas, 2021. "Transparency as a remedy for agency problems in securitization? The case of ECB’s loan-level reporting initiative," Journal of Financial Intermediation, Elsevier, vol. 46(C).

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