The effect of securitization on US bank lending and monetary policy transmission

Abstract

Purpose

The purpose of this paper is to assess the effect of securitization on US bank lending and monetary policy transmission.

Design/methodology/approach

The authors use a sample of 174 US commercial banks from 2001 to 2008 and regress the ratio of total loans per total assets on variables related to securitization activity, variables related to bank-specific characteristics, economic growth and monetary policy, as well as interaction terms that are the product of this variable with securitization and bank-specific characteristics. GLS and SUR techniques are used.

Findings

The results show that a greater recourse to securitization is associated with an increase of US bank lending capacities. Furthermore, it makes banks (especially less liquid ones) less sensitive to a monetary tightening. The authors conclude that when securitization is used as a risk management tool, the efficacy of monetary actions is confirmed. However, when securitization is considered as a substitute for liquid assets, monetary actions become ineffective. So, an increase in federal rates cannot, in this case, affect bank lending.

Originality/value

The paper contributes to a better understanding of how securitization affects bank lending and the effectiveness of monetary policy. The volume of securitized assets should now be considered as a part of traditional liquidity measures.

Citation

Ben Salah, N. and Fedhila, H. (2014), "The effect of securitization on US bank lending and monetary policy transmission", Studies in Economics and Finance, Vol. 31 No. 2, pp. 168-185. https://doi.org/10.1108/SEF-12-2012-0140