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Working Paper
Asymmetric Information and the Death of ABS CDOs
A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a ?workhorse" model for pricing securities under asymmetric ...
Working Paper
Crisis Liquidity Facilities with Nonbank Counterparties: Lessons from the Term Asset-Backed Securities Loan Facility
In response to immense strains in the asset-backed securities market in 2008 and 2020, the Federal Reserve and the U.S. Treasury twice launched the Term Asset-Backed Securities Loan Facility (TALF). TALF was an unusual crisis facility because it provided loans to a wide range of nonbank financial institutions. Using detailed loan-level data unexplored by previous researchers, we study the behavior of nonbank borrowers in TALF. We find the extent to which the actions of these borrowers supported key program goals--stabilizing markets quickly, winding down the program when it was no longer ...
Working Paper
How Private Equity Fuels Non-Bank Lending
We show how private equity (PE) buyouts fuel loan sales and non-bank participation in the U.S. syndicated loan market. Combining loan-level data from the Shared National Credit register with buyout deals from Pitchbook, we find that PE-backed loans feature lower bank monitoring, lower loan shares retained by the lead bank, and more loan sales to non-bank financial intermediaries. For PE-backed loans, the sponsor's reputation and the strength of its relationship with the lead bank further reduce the lead bank's retained share and monitoring. Our results suggest that PE sponsor engagement ...
Working Paper
Securitization and lending standards: Evidence from the European wholesale loan market
We assess the effect of securitization activity on banks' lending rates employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, in the run up to the 2007-2009 crisis banks that were more active at originating asset-backed securities did not price their loans more aggressively (i.e. with narrower lending spreads) than less-active banks. Using a unique feature of our dataset, we show that also within the set of loans that were previously securitized, the relative level of securitization activity by the originating bank is not related to narrower ...
Working Paper
Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters
Multi-market banks reallocate capital when local credit demand increases after natural disasters. Following such events, credit in unaffected but connected markets declines by about 50 cents per dollar of additional lending in shocked areas, but most of the decline comes from loans in areas where banks do not own branches. Moreover, banks increase sales of more-liquid loans in order to lessen the impact of the demand shock on credit supply. Larger, multi-market banks appear better able than smaller ones to shield credit supplied to their core markets (those with branches) by aggressively ...
Working Paper
Safe Collateral, Arm's-Length Credit : Evidence from the Commercial Real Estate Mortgage Market
When collateral is safe, there are less opportunities for things to go wrong. We examine matching between collateral and creditors in the commercial real estate mortgage market by comparing loans in commercial mortgage backed securities (CMBS) conduits and bank portfolios. We model CMBS financing as lower cost but less informed, such that only safe collateral is funded by CMBS. This prediction is tested using the 2007-2009 shutdown of the CMBS market as a natural experiment. The loans funded by banks that would have been securitized are less likely to default or be renegotiated, indicating ...
Working Paper
Securitization and Credit Quality
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 ...