Securitization and aggregate investment efficiency

This paper studies the efficiency of competitive equilibria in economies where the expansion of investment is facilitated by securitization. We show that the use of securitization is generally associated with constrained inefficient aggregate investment, thereby potentially justifying regulatory intervention in markets for securitized assets. We examine the effectiveness of two real-world policy instruments to address this inefficiency: ex-ante capital / leverage requirements, as well as skin-in-the game (retention) requirements. We find that leverage/capital restrictions can increase welfare in our environment, but that forcing originators to hold additional skin-in-the game is not welfare improving.     

The Real Effects of FAS 166/167 on Banks’ Mortgage Approval and Sale Decisions

We examine the real effects of FAS 166 and FAS 167 on banks’ loan‐level mortgage approval and sale decisions. Effective in 2010, these standards tightened the accounting for securitizations and consolidation of securitization entities, respectively, causing banks to recognize an estimated $811 billion of securitized assets on balance sheet. We find that banks that recognize more securitized assets exhibit larger decreases in mortgage approval rates and larger increases in mortgage sale rates. These effects significantly exceed those of banks’ off–balance sheet securitized assets, consistent with our results being driven by the consolidation of securitization entities rather than by securitization per se. We conduct tests that help rule out the financial crisis as an alternative explanation for our results. Further analyses suggest that mechanisms underlying the results include consolidating banks’ reduced regulatory capital adequacy, increased market discipline, and consequent desire not to recognize high‐risk mortgages on balance sheet.     

贷款证券化、监管资本套利与资本监管改进

巴塞尔协议的资本充足率指标可以反映银行部门吸收风险损失的能力,但是无法监测和控制银行体系外的贷款总额和累积的信用风险。20世纪70年代的贷款证券化创新导致银行进行监管资本套利,并使得资本充足率监管趋于失效。本文基于贷款证券化下银行贷款余额与社会贷款余额的差异,分析银行监管资本套利的微观机制并提出改进资本监管的建议。     

Capital incentives and adequacy for securitizations

This paper analyzes the capital incentives and adequacy of financial institutions for asset portfolio securitizations. The empirical analysis is based on US securitization rating and impairment data. The paper finds that regulatory capital rules for securitizations may be insufficient to cover implied losses during economic downturns such as the Global Financial Crisis. In addition, the rating process of securitizations provides capital arbitrage incentives for financial institutions and may further reduce regulatory capital requirements. These policy-relevant findings assume that the ratings assigned by rating agencies are correct and can be used to build a test for the ability of Basel capital regulations to cover downturn losses.     

Do capital requirements affect cost efficiency? Evidence from China

This paper contributes to the debate on the effect of capital requirements on cost efficiency. We study the relation between capital ratio and cost efficiency for Chinese banks over the period 2004–2009, taking advantage of the profound regulatory changes in capital requirements that occurred during this period to measure the exogenous impact of an increase in the capital ratio on banks’ cost efficiency. We find that such an increase has a positive effect on cost efficiency, the size of which depends to an extent on the bank's ownership type. Our results therefore suggest that capital requirements can improve cost efficiency.     

Credit Card Securitization and Regulatory Arbitrage

This paper explores the motivations and desirability of off-balance sheet financing of credit card receivables by banks. We explore three related issues: the degree to which securitizations result in the transfer of risk out of the originating bank, the extent to which securitization permits banks to economize on capital by avoiding regulatory minimum capital requirements, and whether banks' avoidance of minimum capital regulation through securitization with implicit recourse has been undesirable from a regulatory standpoint. We show that regulatory capital arbitrage is an important consequence of securitization. The avoidance of capital requirements could be motivated either by efficient contracting or by safety net abuse. We find that securitizing banks set their capital relative to managed assets according to market perceptions of their risk, and seem not to be motivated by maximizing implicit subsidies relating to the government safety net when managing their risk. This evidence is more consistent with the efficient contracting view of securitization with implicit recourse than with the safety net abuse view.     

Are non-risk based capital requirements for insurance companies binding?

We investigate whether insurers base their solvency margins on risk factors even when operating under a supervisory regime where minimum solvency requirements do not fully take such risk factors into account. To do this, we use a dataset of about 350 Dutch insurers from all major lines of business during the pre-Solvency II period 1995–2005. We find that the levels of insurers’ actual solvency margins are related to their risk characteristics and not to regulatory solvency requirements. Consequently, the vast majority of insurers hold much more capital than required, i.e. non-risk based capital requirements generally are not binding. Requirements are found to affect solvency adjustment behaviour, though. More specifically, below-target capital ratios are raised most rapidly by those insurers whose targets are relatively close to the regulatory minimum. One implication from our results is that, because insurers already follow a risk-based approach, the transition to the new European regulatory framework, Solvency II, is likely to be smooth.     

深化资本市场中枢作用研究

资本市场应当主导我国金融市场由资金配置向资本配置转型、由不动产金融向动产金融转型,同时主导我国生产要素市场化改革。资本市场在经济活动中发挥主导作用的关键在于提升其价值发现能力,而当前我国资本市场价值发现能力欠缺有多方面深层次原因:一是对资产和资金的包容和汇聚不够,二是资本的流动和配置受到制约,三是定价机制受到一定程度的扭曲,四是产权制度不完善,五是市场主体归位尽责情况不理想,六是金融衍生品市场不够成熟。本文建议:一是完善多层次资本市场建设,二是推动市场多空机制均衡发展,三是纠偏资本市场定价机制,四是加速完善现代产权制度,五是强化对市场各主体的培育,六是加强资本市场高质量对外开放。     

Structural effects of asset-backed securitization

This paper analyses the potential changes in the operational structure of deposit-taking financial institutions that securitize assets. Findings indicate that banks can create an asset securitization pipeline structure that enables them to increase their return on capital. In other words, through securitization banks can expand their loan provision business without increasing their liabilities or their capital levels. Using a contingent claims model, four factors that impact on the bank's decision to securitize are highlighted and analysed: (i) the level of deposit insurance; (ii) capital adequacy requirements; (iii) insolvency risk; and, (iv) the risk of credit enhancements. Furthermore, we identify key accounting and regulatory challenges that emerge for banks from the process of asset backed securitization.     

Monitoring the “invisible” hand of market discipline: Capital adequacy revisited

The recent U.S. financial crisis and governmental bailout of financial institutions have intensified the debate on the need for effectively measuring and monitoring the financial institutions’ risks. This paper contributes to this discussion by introducing a market-based capital measurement that better captures the dynamics of bank risk and returns. Evidence confirms that these market-based capital adequacy metrics are much more sensitive to risk factors and more responsive to economic events than the traditional accounting/regulatory report based capital models, which often underestimate the true capital needs. The CDS premia, another market-bases solvency measure, seems to overreact to declines in capital adequacy.     

Spanish credit institutions: do efficiency and solvency support the first decisions on bank restructuring from a financial point of view 2008-2012?

The restructuring processes of the Spanish financial entities over the last years has led us to analyze financially how efficiency and solvency of banks and savings banks explain the decisions of incorporation and control of these entities. We analyze 51 Spanish financial entities for the period 2008-2012. The results show higher solvency and efficiency of banks over savings banks. On the other hand, after the first integrations it is observed that it is still early for these ratios to improve on the results obtained by the entities before the integrations. However, from the financial point of view, these integrations do explain how correct the start-up and intensification of the restructuring processes were. There are some exceptions to the global criteria, which are explained by the size, strength and structure of the business and the closeness of its financial management scope to the area and business structure of the bigger banking groups.     

The location of financial sector FDI: Tax and regulation policy

This paper analyzes how corporate taxation and regulatory requirements affect the location of financial sector FDI. We use novel information on new financial services entities established by multinational firms in 83 host countries. We find a negative effect of host country taxes on the probability of choosing a particular host location. We can also confirm a significant influence of the regulatory environment. For example, stricter (equity) capital requirements negatively affect location probabilities. Our empirical approach allows us to provide new insight in how a policy measure of a given country affects other countries by estimating cross-country tax and regulation elasticities.     

Capital requirements and claims recovery: A new perspective on solvency regulation

Protection of creditors is a key objective of financial regulation. Where the protection needs are high, that is, in banking and insurance, regulatory solvency requirements are an instrument to prevent that creditors incur losses on their claims. The current regulatory requirements based on value at risk (V@R) and average value at risk (AV@R) limit the probability of default of financial institutions, but they fail to control the size of recovery on creditors' claims in the case of default. We resolve this failure by developing a novel risk measure, recovery V@R. Our conceptual approach is flexible and allows the construction of general recovery risk measures for various risk management purposes. We provide detailed case studies and applications. We show that recovery risk measures can be used for performance-based management of business divisions of firms and discuss how to calibrate recovery risk measures to historical regulatory standards. Finally, we analyze how recovery risk measures react to the joint distributions of assets and liabilities on firms' balance sheets and compare the corresponding capital requirements with the current regulatory benchmarks based on V@R and AV@R.     

Bank Capital and Liquidity Creation: Granger-Causality Evidence

We examine the relation between capital and liquidity creation. This issue is interesting because of the potential impact on liquidity creation from tighter capital requirements such as those in Basel III. We perform Granger-causality tests in a dynamic GMM panel estimator framework on an exhaustive data set of Czech banks, which mainly includes small banks from 2000 to 2010. We observe a strong expansion in liquidity creation until the financial crisis that was mainly driven by large banks. We show that capital negatively Granger-causes liquidity creation in this industry, where majority of banks are small. But we also observe that liquidity creation Granger-causes a reduction in capital. These findings support the view that Basel III can reduce liquidity creation, but also that greater liquidity creation can reduce banks’ solvency. Thus, we show that this reverse causality generates a trade-off between the benefits of financial stability induced by stronger capital requirements and the benefits of increased liquidity creation.     

金融危机后的资产证券化法律监管

作为一种金融创新工具,资产证券化在金融危机中遭受质疑和约束。在相关国际金融组织及主要发达国家的努力下,资产证券化正在逐步得以恢复。要保障资产证券化的健康发展,就必须对资产证券化监管法律制度进行改革。对资产证券化监管的首要目标是维护金融安全,对金融效率、金融自由的追求必须符合维护金融安全的要求。相关国际组织及一些国家资产证券化监管法律制度改革的实践表明：金融安全是金融监管的逻辑起点。     

Formulaic Transparency: The Hidden Enabler of Exceptional U.S. Securitization

Why does the securitization of residential mortgages, credit cards, auto loans, and other such consumer debt in the U.S. exceed the securitization of such debt in Europe by several trillion dollars? The author points out that lemon problems do not stop the sale of used cars but they do prevent the operation of a market in which buyers place sight‐unseen bids for used cars offered by unknown sellers. Buyers prefer to know who the seller is and test‐drive vehicles. Similarly until the 1980s, creditors were willing to forgo the information they could secure in private transactions to get tradability mainly in the case of bonds issued by governments or a few blue‐chip companies. U.S. government policy encouraged the securitization of trillions of dollars of loans made to millions of borrowers. U.S. rules—rather than new financial or information technologies—have strongly encouraged originators of mortgages and other consumer loans to rely on credit scores (commonly referred to as FICO scores) produced by credit bureaus. And reliance on scores that loan originators use but don’t produce helps overcome the information asymmetry problems that would otherwise constrain securitization. The argument turns the usual concern about securitization on its head: transferring risks to investors is normally expected to discourage careful screening of borrowers, but the author’s analysis suggests that formulaic, FICO‐based screening actually enables risk transfer by reducing information asymmetry problems. Moreover, while limiting screening reduces the upfront costs of lending, it also increases loans made to uncreditworthy borrowers. And because increasing loans made to bad borrowers raises the rates good borrowers have to pay (to compensate investors for higher defaults), U.S. rules that sacrifice information for more “complete” markets may be a bad bargain.     

Are there too many safe securities? Securitization and the incentives for information production

We present a model that helps explain several past collapses of securitization markets. Originators issue too many informationally insensitive securities in good times, blunting investor incentives to become informed. The resulting endogenous scarcity of informed investors exacerbates primary market collapses in bad times. Inefficiency arises because informed investors are a public good from the perspective of originators. All originators benefit from the presence of additional informed investors in bad times, but each originator minimizes his reliance on costly informed capital in good times by issuing safe securities. Our model suggests regulations that limit the issuance of safe securities in good times.     

Value Creation through Securitization: Evidence from the CMBS Market

Despite recent volatility and constraints in secondary market funding, analysts have ascribed substantial value creation to the securitization of commercial mortgages. Such value creation likely emanates from liquidity enhancements, regulatory arbitrage, price discrimination and risk diversification by pooling and tranching, gains from specialization in origination, servicing, and holding of mortgages, and the like. Indeed, such value creation would be consistent with past accelerated growth in the mortgage- and asset-based securities markets and the sizable profits earned by secondary market intermediaries. In this paper, we estimate the pricing effects of commercial mortgage securitization. We do so by applying loan level data from 1992–2003 to compare the pricing of conduit and portfolio loans held in CMBS structures. In contrast to portfolio loans, which are held for investment by originating institutions, conduit loans are originated for the sole purpose of sale and securitization in the secondary market. If securitization creates value, it should be evidenced in the relative pricing of conduit loans sold into CMBS pools and in a lower cost of capital to loan originators. We estimate a reduced-form model, in which the interest rate spread between commercial mortgages and comparable-maturity treasury securities varies with loan characteristics, capital market conditions, and conduit loan status. Estimation results indicate that securitization of conduit loans leads to an 11 basis points reduction in commercial mortgage interest rates. We assess robustness of results via hazard model tests for omitted variables and originator-specific effects. We further estimate a simultaneous equations model that accounts for the potential endogeneity of mortgage loan terms to the mortgage-treasury rate spread. Results of that analysis suggest a larger 20 basis points reduction in loan pricing among conduit loans sold into CMBS structures.     

金融危机后有关金融监管改革的理论综述

本文从九个角度综述了金融危机后全球主要金融监管当局关于金融监管改革的代表性文献,包括系统性风险与宏观审慎监管、顺周期性、资本充足率和杠杆率、期限转化和流动性、薪酬激励机制、金融安全网措施和对问题机构的处置机制、信用证券化和信用衍生品市场、信用评级机构、金融监管的理论基础等。本文旨在梳理金融监管改革的最新进展,力图提炼出有待深入研究的课题。