Since the Global Crisis, a broad discussion about the future of securitisation has emerged. This column presents new evidence on the relationship between securitisation and economic growth. The impact of securitisation depends on the underlying type of collateral. Securitisation of business loans may encourage investment and spur economic activity, but securitisation of consumer loans may at the aggregate divert resources away from productive purposes.
Ata Can Bertay, Di Gong, Wolf Wagner, Monday, November 2, 2015 - 00:00
Benjamin Nelson, Gabor Pinter, Konstantinos Theodoridis, Monday, March 16, 2015 - 00:00
Jean-Pierre Landau, Tuesday, December 2, 2014 - 00:00
Charles Wyplosz, Friday, September 12, 2014 - 00:00
Bruno Biais, Jean-Charles Rochet, Paul Woolley, Thursday, August 21, 2014 - 00:00
The Global Crisis has intensified debates over the merits of financial innovation and the optimal size of the financial sector. This column presents a model in which the growth of finance is driven by the development of a financial innovation. The model can help explain the securitised mortgage debacle that triggered the latest crisis, the tech bubble in the late 1990s, and junk bonds in the 1980s. A striking implication of the model is that regulation should be toughest when finance seems most robust and when innovations are waxing strongly.
Markus K Brunnermeier, Yuliy Sannikov, Tuesday, June 3, 2014 - 00:00
Eurozone monetary policy transmission is broken. A key aspect of this is the failure of credit to get to small and medium enterprises, and consumers. This column uses the ‘I theory of money’ to diagnosis the problem and propose ‘prudently designed’ asset-backed securitisation as the cure. This would transform illiquid SME and consumer loans into a liquid asset class that would broaden the transmission mechanism while providing a lasting intermediation market for this segment in the Eurozone.
Taylor Begley, Amiyatosh Purnanandam, Tuesday, April 1, 2014 - 00:00
The recent financial crisis was followed by discussions about that went wrong in the securitisation markets. This column describes some empirical work in the area of informational problems in the securitisation markets. In particular, it examines the tranche structure of deals in the private-label residential mortgage-backed securities (RMBS) markets. The role the equity tranche played in mitigating the information problems in the period up to the crisis is discussed. A larger equity tranche is related to superior ex-post default performance, as predicted by some models of contracting under asymmetric information.
Stijn Claessens, Zoltan Pozsar, Lev Ratnovski, Manmohan Singh, Saturday, January 12, 2013 - 00:00
The risks associated with shadow banking are at the forefront of the regulatory debate. Yet, this column argues that there is as yet no established analytical approach to shadow banking. This means that policy priorities are not clearly motivated. But if we analyse securitisation and collateral intermediation – the two shadow banking functions most important for financial stability – a solid framework that includes existing policy recommendations, as well as some alternative ones, begins to emerge.
Hans Degryse, Santiago Carbó-Valverde, Francisco Rodríguez Fernández, Sunday, September 23, 2012 - 00:00
This paper studies whether the involvedness of a firm’s main bank into different types of securitisation activity influences credit supply before and during the 2007-8 financial crisis. The authors find that, in general, a relationship with a bank that is more involved in securitisation activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firm’s main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset-backed securities by a firm’s main bank aggravates these firms' credit rationing in crisis periods.
Ugo Albertazzi, Leonardo Gambacorta, Carmelo Salleo, Wednesday, May 25, 2011 - 00:00
Before the global crisis, securitisation was hailed as a major breakthrough for the safe functioning of financial markets. Now it is suffering from seriously bad public relations. This column presents evidence from 50 Italian banks between 1995 and 2006 and argues that securitisation, by itself, does not deserve such a nasty reputation.
Ricardo Caballero, Friday, May 21, 2010 - 00:00
Are policymakers on track to prevent a repeat global crisis? This column says the answer is probably “no”. It argues that the current financial reform efforts are mostly aimed at the symptoms rather than the underlying illness. The fundamental problem in the current global macroeconomic and financial equilibrium is one of a shortage of safe assets.
Hyun Song Shin, Friday, September 4, 2009 - 00:00
Hyun Song Shin of Princeton University talks to Romesh Vaitilingam about the role of securitisation, mark-to-market accounting and banks’ incentives in the current financial crisis, making an analogy between the feedback mechanisms that made London’s Millennium Bridge wobble dramatically when it was first opened and those that operate within the modern financial system. The interview was recorded in Princeton in August 2009.
Mathias Hoffmann, Thomas Nitschka, Saturday, June 20, 2009 - 00:00
Mortgage-backed securities have played a major role in the financial crisis and aren’t very popular as a result. This column documents macroeconomic benefits of these instruments, showing that economies with more developed markets for securitised mortgage debt share more consumption risk with other economies.
Con Keating, Tuesday, June 2, 2009 - 00:00
The desire to regulate to avoid repeating this financial crisis is commendable, but this column says that the haste with which new regulations are being promulgated is unnecessary and dangerous. Precursory analysis that is incomplete, incorrect, or inadequate creates substantial potential for unintended consequences. We should take the time to appropriately analyse, design, and implement new regulation.
Hyun Song Shin, Wednesday, March 18, 2009 - 00:00
Did securitisation disperse risks? This column argues that it undermined financial stability by concentrating risk. Securitisation allowed banks to leverage up in tranquil times while concentrating risks in the banking system by inducing banks and other financial intermediaries to buy each other’s securities with borrowed money.
Esther Duflo, Friday, March 6, 2009 - 00:00
This column warns against bank nationalisation without state control. Bankers will not hesitate to enrich themselves at the expense of the public good if they have the opportunity.
Edward J Kane, Monday, March 2, 2009 - 00:00
CEPR Policy Insight No. 32 attributes the ongoing financial crisis to the economic and political difficulties of monitoring and controlling the production and distribution of safety-net subsidies.
Edward J Kane, Tuesday, March 3, 2009 - 00:00
This column introduces Edward J. Kane’s new Policy Insight on the incentive roots of the securitisation crisis
Sean Chu, Patrick Bajari, Minjung Park, Monday, February 2, 2009 - 00:00
This column presents empirical evidence identifying the factors triggering mortgage defaults in the US. Both deterioration of borrowers’ net equity and liquidity constraints have been important. Policy remedies will have to address both concerns – the authors recommend write-downs on loan principal amounts as one such measure.
John Kiff, Paul Mills, Carolyne Spackman, Tuesday, October 28, 2008 - 00:00
Securitisation volumes have plummeted in the wake of the subprime crisis. As a result, banks are keeping more loans on their balance sheets and tightening lending standards. This column reviews the factors that have led to this virtual market shutdown and suggests structural changes, in the form of simpler and more transparent products trading at wider spreads, will be required to revive securitisation.