Lending Relationships and Credit Rationing: The Impact of Securitization
41 Pages Posted: 28 Sep 2012
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Lending Relationships and Credit Rationing: The Impact of Securitization
Lending Relationships and Credit Rationing: The Impact of Securitization
Lending Relationships and Credit Rationing: The Impact of Securitization
Date Written: September 2012
Abstract
Banks have been heavily involved in securitization. We study whether the involvedness of a firms main bank into different types of securitization activity -- asset backed securities (ABS) and covered bonds -- influences credit supply before and during the 2007-8 financial crisis. Both types of securitization allow the bank to generate liquidity. To the extent that ABS activity lowers lending standards in normal times, banks with more ABS activity may reduce their lending more in crisis times as an ex-post effect of a previously higher risk adoption. Employing a disequilibrium model to identify credit rationing, we find that a longer relationship with a firms main bank considerable improve credit supply. In general, we find that a relationship with a bank that is more involved in securitization activities relaxes credit constraints in normal periods. In contrast, while a relationship with a firms main bank that issues covered bonds reduces credit rationing during crisis periods, the issuance of asset backed securities by a firms main bank aggravates these firms credit rationing in crisis periods.
Keywords: financial crisis, lending relationships, securitization
JEL Classification: G21
Suggested Citation: Suggested Citation