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Securitization, financial stability and effective risk retention. A European analysis

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  • Ana Iglesias-Casal
  • María-Celia López-Penabad
  • Carmen López-Andión
  • José Manuel Maside-Sanfiz

Abstract

This paper examines the financial stability of banks that issued securitizations in the European market from 2000 to 2017. We use novel event study methodology and find that securitization has a positive impact on European banks’ systematic risk during the 2000 to 2007 period and that subsequent securitizations have not any impact on systematic risk. The increase in systematic risk is due to an increase in systemic risk and in banks’ idiosyncratic risk. By dividing the sample into those countries on the periphery and those at the core of Europe, it is found that securitization only has an impact on the systematic risk during the pre-crisis period, and only when looking at the peripheral countries does this lead to an increase in systemic risk. For individual countries, there is an observable effect for Spain and the UK prior to the crisis. On controlling for the type of collateral, it is found that this effect occurs when dealing with mortgage-based securitizations.

Suggested Citation

  • Ana Iglesias-Casal & María-Celia López-Penabad & Carmen López-Andión & José Manuel Maside-Sanfiz, 2020. "Securitization, financial stability and effective risk retention. A European analysis," PLOS ONE, Public Library of Science, vol. 15(2), pages 1-28, February.
    • Handle: RePEc:plo:pone00:0228141
    DOI: 10.1371/journal.pone.0228141
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    References listed on IDEAS

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    1. Krahnen, Jan-Pieter & Wilde, Christian, 2006. "Risk Transfer with CDOs and Systemic Risk in Banking," CEPR Discussion Papers 5618, C.E.P.R. Discussion Papers.
    2. Uhde, André & Michalak, Tobias C., 2010. "Securitization and systematic risk in European banking: Empirical evidence," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3061-3077, December.
    3. Krahnen, Jan Pieter & Wilde, Christian, 2006. "Risk transfer with CDOs and systemic risk in bankingfam," CFS Working Paper Series 2006/04, Center for Financial Studies (CFS).
    4. Hayne E. Leland, 2007. "Financial Synergies and the Optimal Scope of the Firm: Implications for Mergers, Spinoffs, and Structured Finance," Journal of Finance, American Finance Association, vol. 62(2), pages 765-807, April.
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    2. Abdelsalam, Omneya & Elnahass, Marwa & Batten, Jonathan A. & Mollah, Sabur, 2021. "New insights into bank asset securitization: The impact of religiosity," Journal of Financial Stability, Elsevier, vol. 54(C).

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