Securitization and Credit Quality

Author/Editor:

David Marques-Ibanez

Publication Date:

November 15, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Banks are usually better informed on the loans they originate than other financial intermediaries. As a result, securitized loans might be of lower credit quality than otherwise similar nonsecuritized loans. We assess the effect of securitization activity on loans’ relative credit quality employing a uniquely detailed dataset from the euro-denominated syndicated loan market. We find that, at issuance, banks do not seem to 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.

Series:

Working Paper No. 16/221

Subject:

English

Publication Date:

November 15, 2016

ISBN/ISSN:

9781475553765/1018-5941

Stock No:

WPIEA2016221

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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