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Asset-Backed Securitization and Financial Stability: The Downgrading Delay Effect

In: Bank Performance, Risk and Firm Financing

Author

Listed:
  • Mario Torre
  • Fabiomassimo Mango

Abstract

Asset-backed securitization (ABS) may contribute to generating instability in financial markets both through an ‘inside effect’ in the banking system — facilitating progressive deterioration of bank assets’ quality — and through an ‘outside effect’ — favouring credit risk transfer from balance sheets of banks acting as originators to investors in asset-backed securities (ABS). The rating assigned to ABS has the function of indicating to the market the credit risk borne by investors. This depends on the quality of assets and of guarantees lent by originators and by any third-party guarantor, as well as on the trend of macroeconomic determinants which may compromise the capacity of principal debtors to honour their debts.

Suggested Citation

  • Mario Torre & Fabiomassimo Mango, 2011. "Asset-Backed Securitization and Financial Stability: The Downgrading Delay Effect," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Philip Molyneux (ed.), Bank Performance, Risk and Firm Financing, chapter 5, pages 106-134, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-31387-3_6
    DOI: 10.1057/9780230313873_6
    as

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