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Securitization of revolving debt and its determinants

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  • Nourzad, Farrokh
  • Hunter, William
  • Szczesniak, Katherine

Abstract

This article examines factors that financial institutions are likely to consider when deciding to securitize a portion of consumer revolving debt rather than retain them on their books. It also investigates whether the period preceding the 2007-2008 financial crisis had an impact on the portion of consumer revolving debt securitized by these institutions. It finds that more consumer revolving debt is securitized when cardholders’ credit conditions deteriorate; when credit card issuers face increasing losses due to cardholder default; when the spread between average credit card rate and the rate financial institutions pay to raise funds widens; and when the general financial and economic conditions worsen. The findings also suggest that financial institutions may have used asymmetric information to increase the portion of consumer revolving debt that they securitized in the years leading to the recent financial crises.

Suggested Citation

  • Nourzad, Farrokh & Hunter, William & Szczesniak, Katherine, 2020. "Securitization of revolving debt and its determinants," The Quarterly Review of Economics and Finance, Elsevier, vol. 75(C), pages 240-246.
    • Handle: RePEc:eee:quaeco:v:75:y:2020:i:c:p:240-246
    DOI: 10.1016/j.qref.2019.03.009
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    More about this item

    Keywords

    Revolving debt; Securitization; Asymmetric information; ARCH;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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