[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"doc-seo-324895-105":3,"detail-sidebar-cat-0-en-105":81,"doc-detail-324895-en":130},{"code":4,"msg":5,"data":6},0,"ok",{"site_id":7,"language":8,"slug":9,"title":10,"keywords":11,"description":12,"schema_data":13,"social_meta":74,"head_meta":76,"extra_data":78,"updated_unix":80},105,"en","securitization-more-than-just-a-regulatory-artifact","Securitization: More than Just a Regulatory Artifact","","This Economic Commentary examines why banks engage in securitization and how asset-backed lending affects both institutions and regulators. It links the growth of securitization to changing regulatory costs and to advances in information technology that lower execution costs. The text argues securitization can reduce credit and interest-rate risks, generate fee income, and broaden investor access, while requiring regulators to evaluate how securitization should shape bank capital requirements.",{"@graph":14,"@context":73},[15,34,56],{"@type":16,"itemListElement":17},"BreadcrumbList",[18,23,27,31],{"item":19,"name":20,"@type":21,"position":22},"https://docshare.wps.com","Home","ListItem",1,{"item":24,"name":25,"@type":21,"position":26},"https://docshare.wps.com/document/","Document",2,{"item":28,"name":29,"@type":21,"position":30},"https://docshare.wps.com/document/research-report/","Research & 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lending?","Question",{"text":63,"@type":64},"Regulators must assess the risks created by off-balance-sheet lending activities and determine how those risks affect bank capital requirements.","Answer",{"name":66,"@type":61,"acceptedAnswer":67},"How did securitization begin in the text?",{"text":68,"@type":64},"It traces securitization to government efforts that expanded mortgage-market funding and to the creation of secondary-market intermediaries, culminating in the mortgage “pass-through” instrument in 1970.",{"name":70,"@type":61,"acceptedAnswer":71},"What benefits does securitization provide to banks?",{"text":72,"@type":64},"Securitization can mitigate credit and interest-rate risks, generate fee income, and attract investors who would otherwise not hold bank 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A.Samolyk  \nComeiveand reguaory pesurshave prompted banks and other financialintermediaries to participate in credit mar-kets in ways that are not directly reflectedon their balance sheets.This poses a prob-lem for regulators,who must assess therisks of these off-balance-sheet lendingactivities.One such activity isthe packag-ing of loans into marketable securities,which is known as asset-backed lendingorsecuritization.  \nFor example,banks and other loanoriginators often sell fixed-ratemortgages to government-sponsoredagencieswhich in tum package theseloans with those acquired from other in-stitutions into mortgage pools.Theagency sells securities that are claimsto these pools to investors in the bondmarket.In the past several years,securitization has spread beyondgovemment-sponsored activity toprivate asset-backed pools that fund awide range of loans.  \nThe recent proliferation of asset-backedending has raised questions about its im-pact on the performance of banks.Thisconcern reflects the fact that banks are in-volved in many aspects of the securitiza-ion process,such as packaging,servic-ing,or enhancing the creditworthiness ofthese securities.Regulators must deter-mine what risks securitization poses to theparticipating institutions and how theserisks should be reflected in the assessmentof bank capital requirements.  \n# Securitization:More thanJust a Regulatory Artifact\n\nThis Economic Commentary exploresbanks'incentives to engage in securiti-zation.Part of the dramatic increase inthis activity can be traced to bankingregulations that raise the cost of fund-ing loans with depositsHowever,another important factcr driving asset-backed lending by bank is the im-provement in information technologythat has made securitization cost effec-tive.Indeed,the proliferation of asset-backed lending to nonbank firms indi-cates that this mode of funding hasbecome efficient for firms not subjectto these regulatory costs.  \nFrom this perspective,we contend thatsecuritization itself is not undesirable,and in fact is an efficient response bybanks to their changing financial en-vironment.Securitization serves as avehicle for institutions to mitigate bothcredit and interest-rate risks,whilegenerating fee income for participatingbanks.Moreover,the securitizationprocess enables banks to attract inves-tors who would otherwise not holdbank liabilities.Nevertheless,securiti-zation poses a challenge to regulators,as they must assess how this activity af-fects risk in the banking industry  \n■ Securitization and DiversificationAs their name suggests,depository in-stitutions,such as commercial banksand savings and loans(thrifts),havetraditionally funded their lending ac-tivities by attracting deposits.How-ever,until 1986,deposit-rate ceilings  \nMay 1.1992  \nThe recent surge in the volume ofasset-backed lending has promptedregulators to scrutinize its effects on thebanking industry.Although popularwisdom holds that securitization hasbeen regulatory driven,much of theboom in this funding process has beenthe result of improvements ininforma-tion technology,which have madesecuritization highly cost effective forbanks and nonbanks alike.  \nlimited the ability of these institutionsto attract funds when market rates roseabove regulated maximums.Banks andthrifts also tended to operate in fairlylocalized markets because of informa-tion costs and regulations limiting thescale and scope of banking activities.Depositories were therefore vulnerableto loca credit-market conditions,suchas the health of the local real-estatemarket.This was particularly true ofthrifts,which were required to hold acertain fraction of their portfolios asresidential mortgages.  \nIndeed,asset-backed lending began asan outgrowth of the government'seffort to increase the flow of funds tothe mortgage market.In the late 1960s,govemment-sponsored credit agenciessuch as the Federal National MortgageAssociation(Fannie Mae)and theGovemment National Mortgage Asso-c","cbCaiia0mbat8fcy","https://ap.wps.com/l/cbCaiia0mbat8fcy","pdf",1147340,"English","# Securitization: More than Just a Regulatory Artifact\n## Securitization and Diversification","[{\"question\":\"Why do regulators scrutinize asset-backed lending?\",\"answer\":\"Regulators must assess the risks created by off-balance-sheet lending activities and determine how those risks affect bank capital requirements.\"},{\"question\":\"How did securitization begin in the text?\",\"answer\":\"It traces securitization to government efforts that expanded mortgage-market funding and to the creation of secondary-market intermediaries, culminating in the mortgage “pass-through” instrument in 1970.\"},{\"question\":\"What benefits does securitization provide to banks?\",\"answer\":\"Securitization can mitigate credit and interest-rate risks, generate fee income, and attract investors who would otherwise not hold bank liabilities.\"}]","Securitization: More than Just a Regulatory Artifact | PDF",1789969158,13]