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Securitization, covered bonds and the risk taking behavior of European banks

Arif, Ahmed; Bottazzi, Laura; Pastorello, Sergio

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Authors

Ahmed Arif

Laura Bottazzi

Sergio Pastorello



Abstract

This study investigates the impact of securitization and the issuance of covered bonds on the credit risk taking behavior of banks. We collected data for seven major European economies for the period between 2001 and 2014, that is, both before and after the global financial crisis of 2008. In this paper. we address self-selection concerns about the endogeneity of the decision to securitize or issue covered bonds by using the Covariance Balancing Propensity Score method. We inquire whether securitizing banks hold portfolios that contain riskier assets than those of banks that issue covered bonds and whether the risk taking behavior of banks changed after the recent financial crisis. Our results suggest that European banks typically view securitization as a financing rather than a risk management tool. Therefore, our findings do not support the conventional wisdom that the absence of skin in the game causes banks to assume more risk. Instead, we find evidence that securitizing banks have been opting for lower risk asset portfolios after the 2008 crisis.

Citation

Arif, A., Bottazzi, L., & Pastorello, S. (2022). Securitization, covered bonds and the risk taking behavior of European banks

Publication Date Jun 2, 2022
Deposit Date Jun 2, 2022
Publicly Available Date Mar 29, 2024
Series Title European Corporate Governance Institute – Finance Research Paper Series
Series Number 828/2022
Keywords Securitization, Covered Bonds, Credit Risk, European Banks, Risk Retention, Propensity Score Methods
Public URL https://uwe-repository.worktribe.com/output/9598132
Publisher URL http://dx.doi.org/10.2139/ssrn.3033004

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Copyright Statement
© Ahmed Arif, Laura Bottazzi and Sergio Pastorello 2022. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source.






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