Securitization as a response to monetary policy

• Zhang, Jiarui 
• Xu, Xiaonian 

Indexed by

SSCI Scopus ABDC-B

Abstract

This　paper　studies　how　monetary　easing　provides　incentives　for　banks　to　take　risk　and　issue　mortgage-backed　securities　(MBS)　and,　because　MBS　have　the　＂lemon＂　property,　why　MBS　buyers　are　willing　to　purchase　high-risk　securities　at　high　prices.　Banks　need　equity　to　attract　deposits.　Monetary　easing　reduces　this　need,　and　banks　leverage　up　and　reduce　their　monitoring　efforts.　The　internal　need　for　liquidity　and　risk　sharing　motivates　banks　to　issue　MBS.　Security　buyers　understand　the　moral　hazard　problem　that　banks　face　but　are　willing　to　purchase　bank　securities　at　high　prices　because　monetary　easing　would　also　reduce　their　cost　of　funds.

Keyword

• monetary policy
• mortgage-backed securities
• risk taking

Author Community

[Zhang, Jiarui] Univ Nottingham, Business Sch China, Dept Finance Accounting & Econ, Ningbo, Zhejiang, Peoples R China

[Xu, Xiaonian] China Europe Int Business Sch, Dept Econ & Decis Sci, Shanghai, Peoples R China

Related Article

• NOMINAL GDP TARGETING AND CENTRAL BANK CONSERVATIVENESS

  2019，Bulletin of Economic Research

• Interactive effects of multiple organizational climates on employee innovative behavior in entrepreneurial firms: A cross-level investigation

  2016，JOURNAL OF BUSINESS VENTURING

• Is R&D risky?

  2016，Strategic Management Journal

• When does incentive compensation motivate managerial behaviors? An experimental investigation of the fit between incentive compensation, executive core self-evaluation, and firm performance

  2012，Strategic Management Journal