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Retained Interests in Securitisations and Implications for Bank Solvency

Casu, B. and Sarkisyan, A. (2013). Retained Interests in Securitisations and Implications for Bank Solvency (Report No. ECB Working Paper No. 1538). European Central Bank, ISSN 1725-2806.

Abstract

Using US bank holding company data for the period 2001 to 2007, this paper examines the relationship between banks' retained interests in securitisations and insolvency risk. We find that the provision of credit enhancements and guarantees significantly increases bank
insolvency risk, albeit this varies for different levels of securitisation outstanding. Specifically, retained interests increase insolvency risk for “large scale” securitisers while having a risk-reducing effect for “small-scale” and/or first-time securitisers. In addition, we find that the type of facility provided has implications for bank risk, with those with the most subordinated (first-loss) position having the greater impact on banks' default risk. Finally, we find that engagement in third-party securitisations has no significant effect on bank risk.

Publication Type: Monograph (Working Paper)
Additional Information: © 2013 European Central Bank
Publisher Keywords: securitisation, retained interests, insolvency risk
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/16287
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