Three Essays on Asset Securitization

  • Aziidah Nanteza

Student thesis: Doctoral Thesis


This thesis investigates the impact of asset securitization on bank behavior. We ex-amine three novel aspects of bank behavior. To this end, we structure the thesis in-to three separate empirical chapters and examine the effect of asset securitization on technical efficiency, deposit rates, and banks’ exposure to climate risk.

To study the effect of asset securitization on technical efficiency, we employ US commercial banks data for the 2010-2019 period and apply the semi-parametric approach proposed by Simar & Wilson (2007). Furthermore, we employ the Structural Equations Modelling (SEM) to examine whether cost of funding and liquidity mediate the relationship between asset securitization and technical efficiency. We find that the effect of asset securitization is positive, suggesting that higher securitization volume increases US banks technical efficiency. We suggest that by securitizing existing loans, banks are able to improve their supply of loans and boast their lending ability, thereby improving their technical efficiency. Moreover, by diversifying liquidity sources when the need arises, securitizing banks are able to support their technical efficiency improvement strategies as they are shielded from external funding’s availability shock. Furthermore, we find evidence that both cost of funding and liquidity individually and simultaneously mediate the relationship between asset securitization and technical efficiency.

For empirical chapter two, we employ US commercial banks’ data for the 2010-2019 period and apply ordinary least squares (OLS) regression for our analysis. Our hypothesis is that by altering banks’ funding and liquidity channels, asset alters banks’ demands for external funding sources i.e., customer deposits. We suggest that despite being able to securitize existing loans when the need for liquidity arises, banks will still employ deposits to fund some of their operations. We find that the effect of asset securitization on deposit growth is positive, despite literature suggesting that securitizing banks become less reliant on deposits. Moreover, we find a positive effect of asset securitization on deposit rates, suggesting that securitizing banks incur lower costs on deposits. Therefore, our findings suggest that despite still employing deposits (at least to some extent), securitizing banks pay a lower price on this source of funding and liquidity. We assert that since securitizing banks are usually larger banks with easier access to other sources of wholesale funding, they possess greater bargaining over how much they pay for deposits.

For empirical chapter three, we employ an international panel of data to examine whether issuing asset-backed securities (ABS) exposes banks to climate risk, and how banks can mitigate this risk. Our findings of the cross-sectional analysis indicate a positive effect of climate risk on ABS spreads, supporting the assertion in literature that banks located in countries with higher exposure to climate risk pay higher spreads. This finding also supports empirical evidence that investors account for climate risk by demanding a higher premium when pricing assets. Moreover, sustainability measures have a significant effect on spreads, albeit opposite effects for ABS and MBS. We suggest that while sustainability measures cannot mitigate climate risk for ABS, they mitigate climate risk for MBS, as these are longer term and therefore, more exposed to the adverse effects of climate change. Moreover, long term investors may be willing to accept lower spreads from banks that are perceived to be engaged in sustainability as a measure to hedge against climate risk. Our research has important implications for banks, investors, policy makers, and other researchers, and we discuss these for each empirical chapter.
Date of Award20 Sep 2023
Original languageEnglish
SupervisorAlper Kara (Main Supervisor)

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