Securitization and Banks’ Equity Risk

Posted: 19 Nov 2012 Last revised: 24 Aug 2022

See all articles by Deming Wu

Deming Wu

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Jiawen Yang

George Washington University - School of Business

Han Hong

Stanford University

Date Written: September 4, 2010

Abstract

This research explores the effects of securitization on the market’s perception of banks’ risk exposure between 2002 and 2007. Our results show that, contrary to some prior evidence in the literature, securitizing banks actually had lower systematic betas until 2007. We find no evidence of increasing idiosyncratic risk with securitization. We identify significant structural break in 2007, when securitizing banks experienced jumps in both systematic and idiosyncratic risks. Finally, we confirm the general belief that larger banks tend to have higher systematic risk and lower idiosyncratic risk because of diversification.

Keywords: Securitization, Bank equity risk, Systematic risk, Banking

JEL Classification: G21, G12, G24

Suggested Citation

Wu, Deming and Yang, Jiawen and Hong, Han, Securitization and Banks’ Equity Risk (September 4, 2010). Journal of Financial Services Research 39, 95-117, 2011, Available at SSRN: https://ssrn.com/abstract=2177637

Deming Wu (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Jiawen Yang

George Washington University - School of Business ( email )

Washington, DC 20052
United States
202-994-8709 (Phone)
202-994-7422 (Fax)

Han Hong

Stanford University ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States

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