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The effect of securitization on US bank lending and monetary policy transmission

Author

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  • Nesrine Ben Salah
  • Hassouna Fedhila

Abstract

Purpose - – The purpose of this paper is to assess the effect of securitization on US bank lending and monetary policy transmission. Design/methodology/approach - – The authors use a sample of 174 US commercial banks from 2001 to 2008 and regress the ratio of total loans per total assets on variables related to securitization activity, variables related to bank-specific characteristics, economic growth and monetary policy, as well as interaction terms that are the product of this variable with securitization and bank-specific characteristics. GLS and SUR techniques are used. Findings - – The results show that a greater recourse to securitization is associated with an increase of US bank lending capacities. Furthermore, it makes banks (especially less liquid ones) less sensitive to a monetary tightening. The authors conclude that when securitization is used as a risk management tool, the efficacy of monetary actions is confirmed. However, when securitization is considered as a substitute for liquid assets, monetary actions become ineffective. So, an increase in federal rates cannot, in this case, affect bank lending. Originality/value - – The paper contributes to a better understanding of how securitization affects bank lending and the effectiveness of monetary policy. The volume of securitized assets should now be considered as a part of traditional liquidity measures.

Suggested Citation

  • Nesrine Ben Salah & Hassouna Fedhila, 2014. "The effect of securitization on US bank lending and monetary policy transmission," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 31(2), pages 168-185, May.
    • Handle: RePEc:eme:sefpps:v:31:y:2014:i:2:p:168-185
    DOI: 10.1108/SEF-12-2012-0140
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    Citations

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    Cited by:

    1. McCredie, Bronwyn & Docherty, Paul & Easton, Steve & Uylangco, Katherine, 2016. "The channels of monetary policy triggered by central bank actions and statements in the Australian equity market," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 46-61.

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