Effects of securitization and covered bonds on bank stability

Arif, Ahmed

Abstract

This paper empirically investigates the relationship of securitization and covered bonds with bank stability and highlights that this relationship varies with the level of a bank's involvement in a specific instrument. The study uses the data from 46 securitizing and covered bond issuing listed banks in Europe for 2000–2014. The initial results show that some banks have been heavily involved in securitization activity, while covered bond issuance does not go beyond a certain limit. The results obtained using a quadratic model and a generalized additive model show a U-shaped relationship between securitization and systemic risk of banks. However, some interesting results are obtained for covered bonds. Initial results do not show a significant impact of covered bonds on systemic risk, but further analysis shows the presence of a size effect. The systemic risk of smaller banks increases after the issuance of covered bonds, while larger banks remain unaffected. The study does not support imposing uniform limits on covered bond issuance; rather such limits should be linked to the bank size. However, some regulatory framework is needed to limit banks’ involvement in securitization.

Citation

Arif, A. (2020). Effects of securitization and covered bonds on bank stability. Research in International Business and Finance, 53, Article 101196. https://doi.org/10.1016/j.ribaf.2020.101196

• Journal Article Type: Article
• Acceptance Date: Jan 31, 2020
• Online Publication Date: Feb 7, 2020
• Publication Date: 2020-10
• Deposit Date: Feb 11, 2022
• Publicly Available Date: Feb 16, 2022
• Journal: Research in International Business and Finance
• Print ISSN: 0275-5319
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 53
• Article Number: 101196
• DOI: https://doi.org/10.1016/j.ribaf.2020.101196
• Keywords: Finance; Business, Management and Accounting (miscellaneous)
• Public URL: https://uwe-repository.worktribe.com/output/9007926
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0275531919302909
• Additional Information: This article is maintained by: Elsevier; Article Title: Effects of securitization and covered bonds on bank stability; Journal Title: Research in International Business and Finance; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.ribaf.2020.101196; Content Type: article; Copyright: © 2020 Elsevier B.V. All rights reserved.