Securitization as a response to monetary policy

Zhang, Jiarui and Xu, Xiaonian (2019) Securitization as a response to monetary policy. International Journal of Finance & Economics . ISSN 1076-9307

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Abstract

This paper studies how monetary easing provides incentives for banks to take risk and issue mortgage‐backed securities (MBS) and, because MBS have the “lemon” property, why MBS buyers are willing to purchase high‐risk securities at high prices. Banks need equity to attract deposits. Monetary easing reduces this need, and banks leverage up and reduce their monitoring efforts. The internal need for liquidity and risk sharing motivates banks to issue MBS. Security buyers understand the moral hazard problem that banks face but are willing to purchase bank securities at high prices because monetary easing would also reduce their cost of funds.

Item Type: Article
Additional Information: "This is the peer reviewed version of the following article: Zhang J, Xu X. Securitization as a response to monetary policy. Int J Fin Econ. 2019;1–12, which has been published in final form at https://doi.org/10.1002/ijfe.1721. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions."
Keywords: monetary policy; mortgage‐backed securities; risk taking
Schools/Departments: University of Nottingham Ningbo China > Faculty of Business > Nottingham University Business School China
Identification Number: https://doi.org/10.1002/ijfe.1721
Depositing User: Yu, Tiffany
Date Deposited: 27 Feb 2019 03:29
Last Modified: 27 Feb 2019 03:29
URI: http://eprints.nottingham.ac.uk/id/eprint/56186

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