Securitization and Credit Quality

Kara, Alper; Marques-Ibanez, David; Ongena, Steven

doi:10.17016/IFDP.2015.1148

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 risks; ;

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