Disentangling the impact of securitization on bank profitability

The impact of securitization on bank profitability and the four transmission channels: bank risk, cost of funding, liquidity and regulatory capital. [Display omitted] We empirically evaluate the channels through which securitization impacts bank profitability. To this end, we analyze the role played...

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Bibliographic Details
Published in:Research in international business and finance 2019-01, Vol.47, p.519-537
Main Authors: Bakoush, Mohamed, Abouarab, Rabab, Wolfe, Simon
Format: Article
Language:English
Subjects:
Bank profitability
Bank risk
Cost of funding
Liquidity
Regulatory capital
Securitization
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Summary:The impact of securitization on bank profitability and the four transmission channels: bank risk, cost of funding, liquidity and regulatory capital. [Display omitted] We empirically evaluate the channels through which securitization impacts bank profitability. To this end, we analyze the role played by bank risk, cost of funding, liquidity and regulatory capital in explaining the relationship between securitization and bank profitability. We find that securitization activities tend to boost profitability. We also show that bank risk, cost of funding, liquidity and regulatory capital individually and jointly act as transmission channels in the securitization-profitability relationship. In addition, we break down the securitization effects on bank profitability into direct and indirect effects and identify the contribution of each individual transmission channel in the overall impact on bank profitability. Our findings have several implications for banks, financial markets, and regulators.
ISSN:0275-5319
1878-3384
DOI:10.1016/j.ribaf.2018.09.013