Securitization and crash risk : Evidence from large European banks

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Title: Securitization and crash risk : Evidence from large European banks
ISBN: 978-952-323-254-9
Author: Battaglia, Francesca ; Buchanan, Bonnie G. ; Fiordelisi, Franco ; Ricci, Ornella
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2018
Series number: 26/2018
Year of publication: 2018
Publication date: 11.12.2018
Pages: 44
Subject (yso): rahoitusmarkkinat; riskit; pankit; kriisit; arvopaperit
Keywords: Eurooppa; arvopaperistaminen
JEL: F30; G01; G14; G21; G32
Other keywords: securitization; crash risk; tail risk; European banks; financial crisis
Abstract: The 2008 global financial crisis highlights the importance of securitization and crash risk. Yet there is a dearth of papers exploring the link between securitization and crash risk. We analyze 7,096 securitization deals made by large European listed banks between 2000 and 2017. Our paper provides evidence that bank risk declines in the year of the securitization and increases in the following year. We also show that this effect is driven by low-risk securitization deals. We use a dynamic panel data approach to establish a causal relationship and control the robustness of our results by using different tail risk measures (such as crash risk, value at risk, and expected shortfall). We also show that the risk reduction effect is weaker in crisis periods relative to normal times. Our findings have policy implications as regulators attempt to revive European securitization markets.

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