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While subordinated debt can be used to increase market discipline on banks by playing a corporate governance role in the presence of a federal safety net that encourages risk taking, it also has implications for banks’ loan sales. Using two measures of banks’ loan sales activity, we find greater proportions of subordinated debt increase the likelihood that banks engage in loan sales activity, and are associated with greater proportions of loan sales. Our results have implications about banks’ lending efficiency as well as their transparency and disclosure policies that could play a role in the transmission mechanism of monetary policy.

This paper aims to examine the interaction between fair-value accounting, asset sales and banks’ lending in booms and busts. Throughout, the author uses “fair value” and “mark-to-market” interchangeably, to denote an accounting regime where changes in the prices of banks’ assets affect regulatory capital. “Historic-cost accounting” has been used in the paper to denote an accounting regime where changes in asset prices do not affect regulatory capital.

The author built a model that examines how the accounting regime affects banks’ incentives to sell assets and how the impact of the accounting regime on asset sales affects lending.

In a bust, fair value strengthens banks’ incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Consequently, lending can be higher under fair value. Conversely, in a boom, historic cost strengthens banks incentives to sell assets. The resulting increase in sales increases banks’ lending capacity. Hence, lending can be higher under historic cost.

This paper identifies a new channel through which the accounting regime could affect lending. The accounting regime can affect banks’ incentives to sell assets. The resulting difference in sales can affect banks’ ability to make new loans. Hence, in a boom, although banks book mark-to-market gains under fair value, asset sales could be higher under historic cost. Lending, thus, could be higher under historic cost. Conversely, in a bust, although banks book mark-to-market losses under fair value, sales could be higher under fair value. Lending, thus, could be higher under fair value.

Savings institutions are progressively improving their sales orientation and provide some encouragement that such institutions are making stronger commitments towards being competitive in the new deregulated environment. The findings of a questionnaire‐based study conducted by FIMA and Hubbard and Associates within America also indicate that savings institutions' managements still have much to learn.

We examine whether loan securitization has an impact on bank efficiency. Using a sample of large US commercial banks from 2002 to 2012, we find that bank loan securitization has a significant and positive impact on bank efficiency, and this relationship is stronger for banks with higher capital ratios, higher default risk, and lower level of liquidity and diversification. Our results are robust to Heckman self-selection correction and difference-in-difference (DID) analysis. In addition, these results are found mainly in non-mortgage loan securitizations but not in mortgage loan securitizations. Finally, we show that loan sales also have a positive impact on bank efficiency.

This paper aims to evaluate the business activities, financial reports, and management compensation practices of Countrywide Financial Corporation (Countrywide) in the period preceding the company's financial distress and leading to its eventual takeover by Bank of America in 2008. This analysis provides a number of insights into the risks that Countrywide was exposed to which may guide future research and financial management.

Case study evaluating the failure of Countrywide Financial Corporation.

First, Countrywide was highly reliant upon the securitization of mortgage loans to finance its activities and this was apparent in the financial reports. Second, these securitization transactions exposed Countrywide to significant financial risks, including the risk inherent in the uncertain values of residual interests and warrantees. Problematically, these risks were not transparently reflected in the financial reports, as confirmed by the lag in the timing of stock price responses. This untimely market response suggests the equity market was not aware of Countrywide's risk exposures until shortly before the company's solvency crisis. Third, the compensation practices of Countrywide encouraged and rewarded management for exposing the firm to significant risks.

This paper provides insights into financial management that are relevant for researchers and professionals.

This paper provides insights for researchers and practitioners relating to the impact of asset securitization on business risk and how these business activities and risks are disclosed in the financial reports.

Agricultural credit markets are dominated by two institutional retail lender groups, the cooperative Farm Credit System (FCS) and commercial banks. Analysis of farm loans made over the 1991S1993 and 2001S2002 periods indicates that FCS lenders were more likely to serve full‐time commercial farmers and farmers located in regions with less competitive credit markets. In contrast, commercial banks were more likely to serve small, part‐time, and hobby farmers. This segmentation of farm credit markets is consistent with federal regulations requiring the FCS to provide credit to “bona fide” farmers with a basis for credit.

The purpose of this paper is to gain insights useful to explain the loan puzzle: the unexpected increase of loans to firms in case of a monetary tightening. To this end, the authors develop the analysis using several loan categories distinguished by lender, scope and borrower. This approach helps to unveil significant differences on how those categories respond to the same shock and allow to evaluate possible alternative explanations for such differences.

The paper is empirical. The analysis is based on a large vector auto-regression, estimated using Bayesian techniques and has as object the US economy.

The findings support a supply-side explanation of the loan puzzle, i.e. banks reshuffle their portfolio in favor of short-term business loans after a monetary tightening. Moreover, the authors achieve the following results. First, the analysis shows that loans to small firms increase as well, but less than what observed with large firms: small firms stay between large firms and households. Second, considering advances and other loans allows to conclude that finance companies behave very much as banks. Third, some limited evidence suggests that not just industrial and commercial loans to firms might increase but also more long-term loans, such as mortgages.

The authors develop an analysis, based on state-of-the-art Bayesian techniques, that reveals the differential response of well-distinguished loan categories to several shocks; monetary and real shocks in the first place. After showing their heterogenous response, the authors discuss it in detail, with specific reference to supply and demand factors of credit intrinsic to the transmission mechanism. With respect to previous contributions, the authors consider a plurality of loan categories functional to understand the reason behind each specific response. This allows to conclude in favor of supply factors as an explanation of the unexpected increase of loans to corporate firms in case of a monetary shock.

The purpose of this paper is to use an equilibrium model to identify the public and private informational requirements for equilibrium pricing and shows that unless these informational requirements are met, skin-in-the-game policies will not be fully effective against moral hazard for banks with relatively large market share. Selling securitizations with recourse can be.

The single-period model shows equilibrium prices depend on both public and private information, the latter produced as banks screen loans. If bank has a sufficiently large market share, it can profit by omitting the screening unless investors can detect the change. The author derives the profit function for not screening, shows that a skin-in-the-game policy cannot fully offset its incentives, and proposes a sale with recourse policy that can.

To value securitizations correctly, investors require both publicly and privately available information. If investors cannot monitor banks closely, correct pricing can be frustrated by profit maximization incentives, since banks with large market shares can profit from not screening. Skin-in-the-game policies cannot fully offset these incentives.

The equilibrium model identifies the public and private informational requirements for equilibrium pricing and shows that unless these informational requirements are met, skin-in-the-game policies will not be fully effective for banks with relatively large market share. Selling securitizations with recourse can be more fully effective.

If it is difficult for investors to obtain private information, skin-in-the-game policies are not provide fully effective remedies against moral hazard. Sales with recourse policies offer promise because they are easy for investors to understand and difficult to evade.

Trading on the basis of private information can create perverse incentives, and appropriate corrective policies can help offset them.

The general equilibrium methodology, the findings of incentives to avoid screening, the flaws with skin-in-the-game policies, and the proposal for sale with recourse are all new.

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.

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.

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.

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.

The purpose of this paper is to empirically investigate universal banks as an important source of external funding and their effects on borrowing firms’ innovation outputs.

The authors employ regression analyses including a difference-in-difference approach and a two-sided matching method to ensure the robustness of the findings. The authors further explore some potential channels and boundary conditions for the main findings.

The authors find that borrowing from universal banks is negatively associated with the quantity of firm innovation, but not the quality of firm innovation. The authors document that borrowing firms reduce their R&D expenditures and rely more on external partners to produce innovation outputs after loan originations from universal banks. The negative relation between universal bank lending and the quantity of firm innovation is more prominent for unrelated innovation and for financially constrained firms.

The evidence reveals that universal banks may use their informational advantage and market power to limit their corporate borrowers’ investment in innovation activities.

The paper extends the line of research on the source of financing and firm innovation, and establishes a robust relationship between capital market and product market.