Economic Policy Uncertainty and Asset Securitization of Banks

Abstract

Frequent changes in economic policies will bring negative effects on the micro operating environment of banks. In this context, the functional effects of asset securitization create conditions for banks to effectively resist the adverse impact of economic policy uncertainty. In view of this, this paper examines the impact of economic policy uncertainty on the development of asset securitization of banks based on the related chain of “economic policy uncertainty—bank micro behavior change—asset securitization development”. It is found that the increase of economic policy uncertainty significantly promotes the development of bank asset securitization. Further, this paper discusses the internal mechanism of the positive impact, and finds that the adverse impact of economic policy uncertainty on the term mismatch, risk-taking and profitability of banks is an important motivation for banks to develop asset securitization, which confirms the original logic of the article, that is, the adverse impact of economic policy uncertainty on the micro operating environment of banks constitutes a series of motives for the development of bank asset securitization, and fully explains that the functional system of asset securitization can be an effective way for banks to cope with frequent policy changes. Finally, this paper studies the corresponding heterogeneity characteristics, and finds that economic policy uncertainty promotes the development of bank asset securitization, which is more significant in non-listed banks and small and medium-sized banks, because these banks lack sufficient adjustment means to adapt to the unstable political environment, and they need to use the functional system of asset securitization to deal with economic policy uncertainty. Therefore, it has a stronger impetus for the development of asset securitization.This paper holds that the main purpose of developing asset securitization is to deal with the uncertain external environment and its adverse impact on its own microstructure. Under the background that the outbreak of the COVID-19 Epidemic has led to the increase of economic policy adjustment and policy uncertainty, the regulatory authorities should not only continuously improve the institutional space for the effective function of asset securitization, but also pay attention to the “double-edged sword” feature of asset securitization, and strive to create a transparent and fair policy environment and stabilize the bank’s expectation of future policies. The conclusion of this paper expands the research field of bank asset securitization from the perspective of economic policy uncertainty, and deepens the cognition of the effect of economic policy uncertainty on bank behavior, which provides useful enlightenment for making the development strategy of asset securitization scientifically, and stabilizing bank behavior through the development of asset securitization under the background of the frequent adjustment of policies caused by the COVID-19 Epidemic.