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What is the value of recourse to asset backed securities? A clinical study of credit card banks

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  • Eric J. Higgins
  • Joseph R. Mason

Abstract

The present paper uses data from revolving credit card securitizations to show that, conditional on being in a position where implicit recourse has become necessary and actually providing that recourse, recourse to securitized debt may benefit short- and long-term stock returns, and long-term operating performance of sponsors. The paper suggests that this result may come about because those sponsors providing the recourse do not seem to be extreme default or insolvency risks. However, sponsors providing recourse do experience an abnormal delay in their normal issuance cycle around the event. Hence, it appears that the asset-backed securities market is like the commercial paper market, where a firm's ability to issue is directly correlated with credit quality. Therefore, although in violation of regulatory guidelines and FASB140, recourse may have beneficial effects for sponsors by revealing that the shocks that made recourse necessary are transitory. ; Also issued as Payment Cards Center Discussion Paper No. 03-04

Suggested Citation

  • Eric J. Higgins & Joseph R. Mason, 2003. "What is the value of recourse to asset backed securities? A clinical study of credit card banks," Working Papers 03-6, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:03-6
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    References listed on IDEAS

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    2. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(1), pages 5-27, August.
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    Cited by:

    1. Mauricio P Fernandes & Hsia Hua Sheng & Mayra Ivanoff Lora, 2014. "Securitization, Credit Rating and Issuers’ Characteristics," Brazilian Business Review, Fucape Business School, vol. 11(6), pages 1-21, December.
    2. Charles Calomiris & Joseph Mason, 2004. "Credit Card Securitization and Regulatory Arbitrage," Journal of Financial Services Research, Springer;Western Finance Association, vol. 26(1), pages 5-27, August.
    3. Górnicka, Lucyna A., 2016. "Banks and shadow banks: Competitors or complements?," Journal of Financial Intermediation, Elsevier, vol. 27(C), pages 118-131.
    4. Lucyna Gornicka, 2014. "Shadow Banking and Traditional Bank Lending: The Role of Implicit Guarantees," Tinbergen Institute Discussion Papers 14-035/VI/DSF74, Tinbergen Institute, revised 16 Jun 2014.

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    Keywords

    Asset-backed financing; Credit cards;

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