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Capital incentives and adequacy for securitizations

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  • Rösch, Daniel
  • Scheule, Harald

Abstract

This paper analyzes the capital incentives and adequacy of financial institutions for asset portfolio securitizations. The empirical analysis is based on US securitization rating and impairment data. The paper finds that regulatory capital rules for securitizations may be insufficient to cover implied losses during economic downturns such as the Global Financial Crisis. In addition, the rating process of securitizations provides capital arbitrage incentives for financial institutions and may further reduce regulatory capital requirements. These policy-relevant findings assume that the ratings assigned by rating agencies are correct and can be used to build a test for the ability of Basel capital regulations to cover downturn losses.

Suggested Citation

  • Rösch, Daniel & Scheule, Harald, 2012. "Capital incentives and adequacy for securitizations," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 733-748.
    • Handle: RePEc:eee:jbfina:v:36:y:2012:i:3:p:733-748
    DOI: 10.1016/j.jbankfin.2011.02.026
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    References listed on IDEAS

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    Cited by:

    1. Wang, Jiamei & Chen, Haibin & Zhang, Heng & Luo, Jianchao & Cheng, Mingwang & Zhang, Jiaping, 2022. "Property rights reform and capital adequacy ratios of rural credit cooperatives in China," Economic Modelling, Elsevier, vol. 106(C).
    2. E. Petrova A. & Е. Петрова А., 2014. "Оценка Риска Остаточной Стоимости Секьюритизированного Пула Активов Оперативного Лизинга // A Securitized Pool Of Operating Lease Assets And Its Residual Value Risk Evaluation," Финансы: теория и практика/Finance: Theory and Practice // Finance: Theory and Practice, ФГОБУВО Финансовый университет при Правительстве Российской Федерации // Financial University under The Government of Russian Federation, issue 3, pages 127-138.
    3. Lützenkirchen, Kristina & Rösch, Daniel & Scheule, Harald, 2014. "Asset portfolio securitizations and cyclicality of regulatory capital," European Journal of Operational Research, Elsevier, vol. 237(1), pages 289-302.
    4. Marco Migliorelli & Philippe Dessertine, 2018. "Time for new financing instruments? A market-oriented framework to finance environmentally friendly practices in EU agriculture," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 8(1), pages 1-25, January.
    5. Miguel Á. Peña-Cerezo & Arturo Rodríguez-Castellanos & Francisco J. Ibáñez-Hernández, 2019. "Multi-tranche securitisation structures: more than just a zero-sum game?," The European Journal of Finance, Taylor & Francis Journals, vol. 25(2), pages 167-189, January.
    6. Петрова Екатерина Александровна, 2014. "Оценка Риска Остаточной Стоимости Секьюритизированного Пула Активов Оперативного Лизинга," Вестник Финансового университета, CyberLeninka;Федеральное государственное образовательное бюджетное учреждение высшего профессионального образования «Финансовый университет при Правительстве Российской Федерации» (Финансовый университет), issue 3, pages 127-138.
    7. Chen, Zhizhen & Liu, Frank Hong & Opong, Kwaku & Zhou, Mingming, 2017. "Short-term safety or long-term failure? Empirical evidence of the impact of securitization on bank risk," Journal of International Money and Finance, Elsevier, vol. 72(C), pages 48-74.
    8. Benbouzid, Nadia & Mallick, Sushanta K. & Sousa, Ricardo M., 2017. "Do country-level financial structures explain bank-level CDS spreads?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 48(C), pages 135-145.
    9. Matthias Bodenstedt & Daniel R�sch & Harald Scheule, 2013. "The path to impairment: do credit-rating agencies anticipate default events of structured finance transactions?," The European Journal of Finance, Taylor & Francis Journals, vol. 19(9), pages 841-860, October.
    10. Daniel Rösch & Harald Scheule, 2014. "Forecasting Mortgage Securitization Risk Under Systematic Risk and Parameter Uncertainty," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(3), pages 563-586, September.
    11. Marco Migliorelli & Philippe Dessertine, 2017. "Time for new financing instruments? A market-oriented framework to finance environmentally friendly practices in EU agriculture," Post-Print halshs-02103991, HAL.
    12. Huong Le & Rajesh Narayanan & Lai Vo, 2016. "Has the Effect of Asset Securitization on Bank Risk Taking Behavior Changed?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 39-64, February.
    13. Lützenkirchen, Kristina & Rösch, Daniel & Scheule, Harald, 2013. "Ratings based capital adequacy for securitizations," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5236-5247.

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    More about this item

    Keywords

    Bank capital; Financial crisis; Rating; Securitization;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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