Has the Effect of Asset Securitization on Bank Risk Taking Behavior Changed?

Abstract

In this paper, we examine whether the relation between securitization and bank risk changes after the financial crisis of 2007 to 2009. Using different measures of risk, we find that prior to 2007, securitization increases bank risk. We find no evidence that securitization increases bank risk after 2009. Our findings are robust to different characterizations of securitization, the time periods used to measure the changes in bank risk, as well as to different estimation approaches. Our findings suggest that the economic losses that the banks suffered during the financial crisis and the new rules put in place in its aftermath have diminished the incentives for banks to engage in risk taking via securitization.