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Title: Lending relationships and credit rationing: the impact of securitization

Author(s): Santiago Carbó Valverde, Hans Degryse and Francisco Rodriguez-Fernandez

Publication Date: September 2012

Keyword(s): financial crisis, lending relationships and securitization

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Carbó Valverde, S, Degryse, H and Rodriguez-Fernandez, F. 2012. 'Lending relationships and credit rationing: the impact of securitization'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9138