Purpose
The purpose of this paper is to investigate the reasons that urge US banks to securitize.
Design/methodology/approach
The authors apply a logistic regression model to a sample of 5,394 observations. The dependent variable takes 1 if the bank securitizes and 0 if not. The authors use also, a Heckman selection model to account for the potential dependence between the decision to securitize and the decision of which assets to securitize.
Findings
The results indicate that liquidity, credit risk transfer, regulatory capital arbitrage and profitability are the most important factors that drive securitization in the USA. Moreover, the nature of the asset securitized appears to be dependent on the objective that the bank pursues. For funding and capital arbitrage objectives, the bank needs to securitize its mortgage loans. However, for credit risk transfer purposes, it has to opt for a non mortgage securitization. The nature of the asset securitized can thus, be used as a signal for bank’s intentions to securitize.
Originality/value
This study contributes to a better understanding of the reasons that urge banks to securitize. It also presents, using a Heckman selection procedure, a detailed analysis that discriminates between different types of securitization.
Credit Risk Transfer, Hedge Funds, and the Supply of Liquidity
