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.