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Article
Publication date: 9 January 2007

Hatice Uzun and Elizabeth Webb

This paper aims to offer a comprehensive comparison of the characteristics between banks that securitize and banks that do not and to provide evidence of the capital…

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6047

Abstract

Purpose

This paper aims to offer a comprehensive comparison of the characteristics between banks that securitize and banks that do not and to provide evidence of the capital arbitrage theory of securitization.

Design/methodology/approach

First, the fundamental financial similarities and differences between banks that securitize assets and banks that do not participate in the securitization market are tested. Second, variables that help predict whether a bank securitizes assets are analyzed. Third, the determinants of securitization extent in banks that securitize assets are investigated – for general securitization extent and for specific type of asset securitized. Using a sample of 112 banks that securitize different assets, a matched sample of banks that do not securitize based on entity type and size is created. A quarterly panel data set of these banks dating back to 2001 is used.

Findings

The results indicate that bank size is a significant determinant of whether a bank securitizes. Further, overall securitization extent is negatively related to the bank's capital ratio (in support of capital arbitrage theory), but this result is primarily driven by credit card securitization.

Originality/value

Utilizing a unique data set of quarterly data from bank Call Reports; the panel data set is large relative to past studies. A matched sample approach was used to test fundamental financial similarities and differences between securitizing and non‐securitizing banks. In addition to aggregated securitization, an examination was made of how different classes of assets affect the banks' risk‐based capital ratios and test the capital arbitrage theory of securitization.

Details

The Journal of Risk Finance, vol. 8 no. 1
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 6 November 2009

Ming Fang and Fenjie Long

Asset‐backed securitization (ABS), which was brought into China in 2005 and followed by a rapid expansion, is an important financial instrument for real estate industry…

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834

Abstract

Purpose

Asset‐backed securitization (ABS), which was brought into China in 2005 and followed by a rapid expansion, is an important financial instrument for real estate industry. The purpose of this empirical study is to assess the effects of asset securitization on stock market and equity holders' wealth by examining stock price changes upon securitization transactions in China from 2005 to September 2008.

Design/methodology/approach

Event study is implemented to test the wealth effects of ABS on shareholders. First, normal stock returns of companies with ABS issuance during the studied period are introduced by running the market model regression; excess returns to stockholders at the time that the securitization became public knowledge are then examined; finally, significance of the excess returns are tested and influencing factors including firm and transaction characteristics are discussed.

Findings

This paper finds that securitization generally does not have significant impact on wealth of stockholders; a considerable number of securitizations are even wealth destroying. The paper interprets these findings to mean that securitization is usually a negative signal to the stock market for first‐time securitizers, but indifferent or positive for frequent securitizers. Additionally, wealth effect of securitization on stockholders also largely depends on its underlying assets.

Originality/value

The outcome of this paper will assist companies, banks, and governments in understanding the effects of asset securitization, thus maximizing gains from securitization and enacting suitable polices and regulations. The paper suggests that companies and governments should examine market conditions and promote securitization only when the market is calm. Additionally, first‐time issuers of asset securitization should be cautious of possible losses caused by signs of the firm's insufficient funding, while subsequent issuance can be regarded as a relatively safe financial instrument.

Details

Journal of Financial Management of Property and Construction, vol. 14 no. 3
Type: Research Article
ISSN: 1366-4387

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Article
Publication date: 1 September 2006

Andreas A. Jobst

The paper surveys the risks and rewards of asset securitisation and illustrates how this structured finance technique can lift credit constraints to small‐ and…

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9283

Abstract

Purpose

The paper surveys the risks and rewards of asset securitisation and illustrates how this structured finance technique can lift credit constraints to small‐ and medium‐sized enterprises (SMEs) as banks to turn more conservative in their lending in response to more risk‐sensitive capital requirements for credit risk.

Design/methodology/approach

The mechanics of securitisation provide an analytical framework and perspective for our analysis of conditions for sustainable SME securitisation and its potential contribution to greater risk diversification of both issuers and investors. The paper also elicits lessons to be learned for essential regulatory and policy measures to guide a sound development of securitisation markets from an empirical review of SME securitisation in Germany.

Findings

The paper finds that the structural versatility of securitisation offers economic benefits irrespective of the configuration of the financial system. The development of a viable securitisation market for SME‐related claims in a bank‐based financial system is likely to require financial sector initiatives, whose scope and intensity might be enhanced by development agencies. Orchestrated policy efforts make for a benign strategy to incubate SME securitisation in a timely fashion, while keeping legal uncertainty and economic attrition to a minimum.

Originality/value

As opposed to previous papers, the paper defines and discusses SME securitisation from both the perspective of bank‐ and firm‐sponsored securitisation and issue hands‐on recommendations for its efficient implementation.

Details

Managerial Finance, vol. 32 no. 9
Type: Research Article
ISSN: 0307-4358

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Article
Publication date: 1 January 2000

Richard Cantor and Stanislas Rouyer

Although issuers may benefit generally from securitization, some asset securitizations transfer more credit risk than others. When a lender uses securitization to replace…

Abstract

Although issuers may benefit generally from securitization, some asset securitizations transfer more credit risk than others. When a lender uses securitization to replace on‐balance‐sheet financing, that lender transfers to investors some of the risks, and, in the form of credit enhancements, some of the offsetting, i.e., claims‐paying, economic resources (e.g., assets, cashflows), as well. Therefore, securitization only reduces an issuer's net (i.e., residual) exposure to credit losses when a securitization has transferred proportionately more credit risk than claims‐paying assets. The authors discuss the distinction between “gross” versus “net” transfers of credit risk. To illustrate this point, they provide conceptual examples of the net effect of an asset securitization on the residual credit risk retained by an issuer. In these examples, providing credit enhancement (e.g., overcollateralization, subordination) may implicitly lever or delever an issuer's balance sheet. The authors outline the general conditions under which this indirect economic recourse to the issuer, in effect a form of “self‐insurance,” may result in a net dilution of the claims of unsecured creditors.

Details

The Journal of Risk Finance, vol. 1 no. 2
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 1 March 2005

Andreas Jobst

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset

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1279

Abstract

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset securitisation. The pathology of the new “securitisation framework” is carefully highlighted to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions is incorporated, the author does not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework.

Details

Journal of Financial Regulation and Compliance, vol. 13 no. 1
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 22 May 2007

Flora Niu

This study examines the stock market valuation of securitization gains reported by using the financial‐components approach under FAS125 (Accounting for Transfers and…

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1035

Abstract

Purpose

This study examines the stock market valuation of securitization gains reported by using the financial‐components approach under FAS125 (Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities).

Design/methodology/approach

Based on a sample of US securitizing firms for the period from 1993 to 2000, I conduct two analyses to examine the extent to which the securitization gains reported under FAS125 are reflected in the stock market valuation.

Findings

The paper finds that the reported gains are positively associated with the stock returns, suggesting that the reported gains are perceived to be value relevant, and that investors appear to use gains in the same manner as they use other earnings information. In addition, it is found that the association between returns and securitization earnings is stronger in the post‐FAS125 period than in the pre‐FAS125 period, suggesting that the financial‐components approach improves the capacity of reported financial statement information to explain stock returns when compared with pre‐FAS125 regulations.

Research limitations/implications

The results of this study should be helpful to standard setters who continue to apply the financial‐components approach for securitizations and for other transactions involving financial instruments.

Details

Review of Accounting and Finance, vol. 6 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 5 July 2019

Eric J. Higgins, Joseph R. Mason and Adi E. Mordel

Both accounting and regulatory treatments classify securitizations as a “sale” of assets, therefore allowing the issuer to remove the assets from their books. The purpose…

Abstract

Purpose

Both accounting and regulatory treatments classify securitizations as a “sale” of assets, therefore allowing the issuer to remove the assets from their books. The purpose of this paper is to present conjectural evidence of recourse activity and bankruptcy treatment that undermine the fundamental concept of true sale.

Design/methodology/approach

The authors use investor reactions to firm’s first securitizations to isolate investors’ views of the potential risk transfer.

Findings

Investor reactions to firms’ first securitization announcements suggest that investors, themselves, think of the effects of securitizations as more like a financing than an asset sale. Firms securitizing for the first time exhibit negative short-term equity returns and negative long-term operating performance, reactions more similar to financings than asset sales. Additional analysis shows that securitization is also associated with increased systematic risk, suggesting that the rapid growth fueled by securitization is similar to increasing leverage. The effect is more pronounced for banks than non-banks.

Originality/value

This is the first study to have used firms' first securitizations to analyze the nature of risk transfer in securitizations. The results show that off-balance-sheet treatment for securitizations may be inappropriate, given investor perceptions of the nature of potential contingent liabilities.

Details

The Journal of Risk Finance, vol. 20 no. 3
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 23 November 2010

Karmila Hanim Kamil, Marliana Abdullah, Shahida Shahimi and Abdul Ghafar Ismail

The purpose of this paper is to provide an insight of Islamic securitization based on sukuk structures.

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4540

Abstract

Purpose

The purpose of this paper is to provide an insight of Islamic securitization based on sukuk structures.

Design/methodology/approach

Descriptive, analytical, and comparative analyses are used to discuss the risk‐sharing behaviour in Islamic securitization through different structures of mudharabah and musharakah sukuk derived from asset securitization.

Findings

The paper reveals that although sukuk are structured in a similar way to conventional asset‐backed securities, they can have significantly different underlying structures, provisions and shariah‐compliant. In particular, it prohibits the receipt and payment of interest and stipulates that income must be derived from an underlying real business risk rather than as a guaranteed return from interest. With regards to sukuk securitization, an asset is one of the vital elements that should exist as an evidence to support the process and make it permissible in Islam. In terms of Islamic securitization mechanism, it can be divided into two principles, namely, debt based and partnership. This paper further emphasizes that sukuk structures based on partnership principle is regarded as risk sharing rather than risk shifting, where it works by combining risk‐exposures in such a way that they offset one another to some degree. Accordingly, overall risk will be less than total risks on individual basis.

Practical implications

This paper has important implication for the understanding of risk management practices particularly in structuring sukuk. Banks as originators and special purpose vehicles (SPV) as issuers, might consider more sukuk on partnership principles since it directed towards risk‐sharing concept that could lead to increase mobilization of savings and investment. As for the investors or sukuk holders, the partnership principle could generate the wealth creation, which to be shared between both investors (fund providers) and issuers (fund users), while both bear the risks involved and the resulting loss.

Originality/value

The paper will fill the gap in the existing literature of Islamic finance by showing that Islamic securitization via sukuk is a viable source of funds that could help stabilize the securities market, and as solution to the current subprime mortgages financial crisis.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 3 no. 4
Type: Research Article
ISSN: 1753-8394

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Article
Publication date: 7 February 2020

Katerina Ivanov and Julia Jiang

The purpose of this paper is to test empirically the impact of asset securitization and sale activities as well as the holdings of sub-prime related securitized products…

Abstract

Purpose

The purpose of this paper is to test empirically the impact of asset securitization and sale activities as well as the holdings of sub-prime related securitized products on the US bank holding companies’ (BHC) exposure to systemic risk.

Design/methodology/approach

This paper adopts a robust econometric method to estimate the conditional value-at-risk as a measure of BHCs' institutional sensitivity to market crushes. Using the data over the period of 2004-2016, the study also uses OLS with robust standard errors and panel estimation with random effects as two alternative estimation techniques to assess the impact of securitization activities on the sensitivity of BHCs to systemic risk.

Findings

Residential mortgage and other forms of securitization activities are positively related to an increase in the US BHCs' sensitivity to systemic distress. The significant cross effects of both securitized loans and holdings of securitized products play a crucial role in determining risks in financial sector.

Originality/value

This study contributes to the empirical literature on the effects of securitization on BHCs' risk exposures in several ways. First, the paper considers the complexity of the bank's risk profile; it focuses on BHCs' individual sensitivity to systemic distress and its dependence on the size of securitization and assets sold activities considering both supply and demand sides of securitization. Second, the time horizon under investigation sheds a light on the relationship between securitization and banks' risk exposures including the pre-crisis, crisis and post-crisis periods.

Details

The Journal of Risk Finance, vol. 21 no. 1
Type: Research Article
ISSN: 1526-5943

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Book part
Publication date: 28 October 2019

Angelo Corelli

Abstract

Details

Understanding Financial Risk Management, Second Edition
Type: Book
ISBN: 978-1-78973-794-3

1 – 10 of over 1000