This research examines the effects of securitization on the bank's risk exposure both in terms of individual expected shortfall and marginal expected shortfall as a measure of systemic risk. The relationship between securitization activity and tail risks is especially relevant in light of the consequences for financial stability, both for the individual securitizing banks and for the market as a whole, as the financial crisis 2007–2008 reveals. By using a sample of Italian listed banks over the period 2000–2009, we find that securitizing banks have, on average, higher expected losses in case of extreme events. This adds new evidence on the main findings in the literature that focused on the evidence that risk transfer through securitization is relatively insignificant compared to the risk retained by the originating bank. We show that this risk retention is in terms of an increase of tail risk. We also find that securitization increases the probability of banks to become “systemically” riskier, but we find no difference when comparing the pre-crisis with the post-crisis period. This suggests that the systemic exposures of Italian banks are still as high as before the crisis with severe implications for financial stability.

Securitization and systemic risk: An empirical investigation on Italian banks over the financial crisis

GALLO, ANGELA
2013

Abstract

This research examines the effects of securitization on the bank's risk exposure both in terms of individual expected shortfall and marginal expected shortfall as a measure of systemic risk. The relationship between securitization activity and tail risks is especially relevant in light of the consequences for financial stability, both for the individual securitizing banks and for the market as a whole, as the financial crisis 2007–2008 reveals. By using a sample of Italian listed banks over the period 2000–2009, we find that securitizing banks have, on average, higher expected losses in case of extreme events. This adds new evidence on the main findings in the literature that focused on the evidence that risk transfer through securitization is relatively insignificant compared to the risk retained by the originating bank. We show that this risk retention is in terms of an increase of tail risk. We also find that securitization increases the probability of banks to become “systemically” riskier, but we find no difference when comparing the pre-crisis with the post-crisis period. This suggests that the systemic exposures of Italian banks are still as high as before the crisis with severe implications for financial stability.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11386/4215054
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