Bankruptcy Remoteness and Incentive-compatible Securitization

Chiesa, Gabriella (2014) Bankruptcy Remoteness and Incentive-compatible Securitization. Bologna: Dipartimento di Scienze economiche DSE, p. 27. DOI 10.6092/unibo/amsacta/3979. In: Quaderni - Working Paper DSE (928). ISSN 2282-6483.
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Abstract

ecuritization performs two functions. One refers to the risk allocation between the bank and outside investors; the other consists of creating transferable/liquid securities. A key ingredient of liquid/claimtransferability is bankruptcy remoteness - the insolvency of the sponsor (the loan originator) has no impact on the securities. We explore the implications of bankruptcy remoteness on risk allocation and regulatory/policy issues. Under traditional banking, when debt/deposits coexist with securitization, bankruptcy remoteness amounts to: i) a seniority structure when debt/deposits (the claim that insist on the bank as a whole) have the lowest priority; ii) the bank finds it optimal to grant securities maximum protection - securitization without risk transfer. This constrains incentive-compatible lending below the social optimum, whenever at an optimal allocation not all risk bears on the bank. Policies that implement the social optimum are derived.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Chiesa, Gabriella
Keywords
Securitization, Bankruptcy remoteness, Risk transfer
Subjects
ISSN
2282-6483
DOI
Deposit date
28 Feb 2014 08:59
Last modified
31 Mar 2014 08:35
URI

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