Securitization and Crash Risk: Evidence from Large European Banks

44 Pages Posted: 14 Dec 2018

See all articles by Francesca Battaglia

Francesca Battaglia

University of Naples Parthenope

Bonnie Buchanan

Surrey Business School, University of Surrey

Franco Fiordelisi

University of Rome III - Department of Business Studies; Middlesex University - Business School

Ornella Ricci

University of Roma Tre, Department of Business Studies

Date Written: December 11, 2018

Abstract

The 2008 global financial crisis highlights the importance of securitization and crash risk. Yet there is a dearth of papers exploring the link between securitization and crash risk. We analyze 7,096 securitization deals made by large European listed banks between 2000 and 2017. Our paper provides evidence that bank risk declines in the year of the securitization and increases in the following year. We also show that this effect is driven by low-risk securitization deals. We use a dynamic panel data approach to establish a causal relationship and control the robustness of our results by using different tail risk measures (such as crash risk, value at risk, and expected shortfall). We also show that the risk reduction effect is weaker in crisis periods relative to normal times. Our findings have policy implications as regulators attempt to revive European securitization markets.

Keywords: securitization, crash risk, tail risk, European banks, financial crisis

JEL Classification: F30, G01, G14, G21, G32

Suggested Citation

Battaglia, Francesca and Buchanan, Bonnie and Fiordelisi, Franco and Ricci, Ornella, Securitization and Crash Risk: Evidence from Large European Banks (December 11, 2018). Bank of Finland Research Discussion Paper No. 26/2018, Available at SSRN: https://ssrn.com/abstract=3301192

Francesca Battaglia (Contact Author)

University of Naples Parthenope ( email )

Via Medina 40
Via Generale Parisi, 13
Naples, 80133
Italy

Bonnie Buchanan

Surrey Business School, University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

Franco Fiordelisi

University of Rome III - Department of Business Studies ( email )

Via Silvio D'Amico 77
Via Silvio D'Amico 77
Rome, RM 00145
Italy

HOME PAGE: http://host.uniroma3.it/docenti/fiordelisi/?home

Middlesex University - Business School ( email )

The Burroughs
London, NW4 4BT
United Kingdom

Ornella Ricci

University of Roma Tre, Department of Business Studies ( email )

Via Ostiense, 159
Rome, RM 00145
Italy

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