Working Paper

Securitization and Credit Quality


Abstract: Banks are usually better informed on the loans they originate than outside investors. As a result, securitized loans might be of lower credit quality than ? otherwise similar ? non-securitized loans. We assess the effect of securitization activity on credit quality employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, at issuance, banks do not select and securitize loans of lower credit quality. Following securitization, however, the credit quality of borrowers whose loans are securitized deteriorates by more than those in the control group. We find tentative evidence suggesting that poorer performance by securitized loans might be linked to banks? reduced monitoring incentives.

Keywords: Securitization; syndicated loans; credit risk; ;

https://doi.org/10.17016/IFDP.2015.1148

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File(s): File format is application/pdf http://dx.doi.org/10.17016/IFDP.2015.1148
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Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: International Finance Discussion Papers

Publication Date: 2015-11-03

Number: 1148

Pages: 34 pages