IMF Working Papers

Credit, Securitization and Monetary Policy : Watch Out for Unintended Consequences

Author/Editor:

Andrea Pescatori ; Juan Sole

Publication Date:

March 23, 2016

Electronic Access:

Free Full Text. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

We show evidence that interest rate hikes slowdown loan growth but lead intermediation to migrate from banks’ balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily byb private-label securitization. On the other hand, the government sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.

Series:

Working Paper No. 16/76

Subject:

Credit expansion Financial intermediaries Interest rate increases Monetary policy Mortgages Nonbank financial sector Securities United States