Lending Relationships and Credit Rationing: The Impact of Securitization

41 Pages Posted: 28 Sep 2012

See all articles by Santiago Carbo-Valverde

Santiago Carbo-Valverde

Universitat de València

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB)

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History

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Date Written: September 2012

Abstract

Banks have been heavily involved in securitization. We study whether the involvedness of a firm’s 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 firm’s 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 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 firm’s credit rationing in crisis periods.

Keywords: financial crisis, lending relationships, securitization

JEL Classification: G21

Suggested Citation

Carbo-Valverde, Santiago and Degryse, Hans and Rodriguez-Fernandez, Francisco, Lending Relationships and Credit Rationing: The Impact of Securitization (September 2012). CEPR Discussion Paper No. DP9138, Available at SSRN: https://ssrn.com/abstract=2153579

Santiago Carbo-Valverde (Contact Author)

Universitat de València ( email )

Departamento de Analisis Economico
Facultad de Economia, Campus Tarongers
Valencia, Valencia 46022
Spain

Hans Degryse

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Francisco Rodriguez-Fernandez

University of Granada - Department of Economic Theory and History ( email )

Granada
Spain

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