Securitization and Banks’ Capital Structure

Abstract

Asset securitization offers banks the possibility of altering their capital structures and the financial intermediation process. This study shows that the introduction of securitization is associated with fundamental changes in the funding policies of banks. We present evidence of more intense use of securitization by banks with stronger growth opportunities, liquidity constraints, costlier alternative sources of funding, and restricted access to capital markets due to adverse selection. Securitization is observed to be higher in the pecking order of financing choices of small- and medium-sized banks and nonlisted banks, which are likely to face more severe adverse selection problems.