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Securitization and Bank Intermediation Function (Zagonov M.)

Interest Rates Risk-taking and Risk Management

Abstract The move from the originate-to-hold to originate-to-distribute model of lending profoundly transformed the functioning of credit markets and weakened the natural asset transformation function performed by …financial intermediaries for centuries. This shift also compromised the role of banks in channeling monetary policy initiatives, and undermined the importance of traditional asset-liability practices of interest rate risk management. The question is, therefore, whether securitization is conducive to the optimal hedging of bank interest rate risk, with this being of particular relevance in the current economic and monetary conditions. The empirical results reported in this work suggest that banks resorting to securitization do not, on average, achieve an unambiguous reduction in their exposure to the term structure fluctuations. Against this background, banks with very high involvement in the originate-to-distribute market enjoy lower interest rate risk. This however by no means implies superior risk management practices in these institutions but is merely a result of disintermediation.
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Libref/ Zagonov M. (2010) "Securitization and Bank Intermediation Function", 23rd Australasian Finance and Banking Conference 2010 Paper, pp. 1 - 47
© Программирование — Александр Красильников, 2008
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