Securitization with recourse: An instrument that offers uninsured bank depositors sequential claims |
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| Institution: | 1. Department of Human Oncology, University of Wisconsin School of Medicine and Public Health, Madison, Wisconsin;2. Department of Radiation and Cellular Oncology, University of Chicago Pritzker School of Medicine, Chicago, Illinois;1. School of Computer Science and Technology, Harbin Institute of Technology, Harbin, China;2. School of Mechatronics Engineering, Harbin Institute of Technology, Harbin, China;3. No.211 Hospital of PLA, Harbin, China |
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| Abstract: | This paper expands on the observation that securitization with recourse offers a lender the protections of an uninsured bank deposit with an additional senior claim if the bank fails. The senior claim derives from the commitment of the revenues from a group of securitized assets that pay off the securitized lender first. Thus, securitization with recourse provides sequential claims for bank liability holders, which improves the allocation of risk sharing among them. Securitization with recourse may also improve the selection of loans granted by partially offsetting the moral hazard incentives toward risk-taking created by fixed-rate deposit insurance. Empirical results are given which are consistent with the theoretical model. |
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