The Securitization Flash Flood

42 Pages Posted: 27 Jul 2016 Last revised: 17 May 2023

See all articles by Kandarp Srinivasan

Kandarp Srinivasan

Northeastern University - D’Amore-McKim School of Business

Date Written: June 20, 2019

Abstract

This paper highlights a connection between the stability of a bank's funding sources (i.e. debt claims) and the illiquidity of assets backing those claims. Using a natural experiment and hand-collected data on over 4,700 repurchase contracts, the paper shows that a shock that decreased illiquidity of private-label MBS resulted in a greater proportion of that asset being held on bank balance sheets, while being financed by unstable funding sources (short term repo debt). This finding is relevant to the recent banking crisis (Silicon Valley Bank collapse of March 2023) where losses on a bank's liquid assets led to a run by uninsured (“flighty”) depositors financing those assets.

Keywords: BAPCPA, securitization, repo markets, bank holding companies

JEL Classification: G21, G23

Suggested Citation

Srinivasan, Kandarp, The Securitization Flash Flood (June 20, 2019). Available at SSRN: https://ssrn.com/abstract=2814717 or http://dx.doi.org/10.2139/ssrn.2814717

Kandarp Srinivasan (Contact Author)

Northeastern University - D’Amore-McKim School of Business ( email )

360 Huntington Ave.
Boston, MA 02115
United States

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