Final Demand for Structured Finance Securities
57 Pages Posted: 19 Jan 2014 Last revised: 31 Aug 2014
Date Written: August 1, 2014
Structured finance boomed during the run-up to the Financial Crisis. Existing explanations for this growth emphasize supply-side factors. Demand, however, was also encouraged by efforts to avoid regulatory capital requirements. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, assets which offered the highest yield per unit of required capital. The results are only evident in accounts subject to capital requirements and at firms with low levels of ex ante capital, consistent with regulation creating distortionary incentives fueling the demand for securitized assets.
Keywords: Demand, RMBS, Capital Requirements
JEL Classification: G01, G18, G21, G22, G23
Suggested Citation: Suggested Citation