Securitization Of Bank Assets Directly Move Due To The Effect Of: Theoretical And Empirical Evidence

Asset securitization enjoyed an 18 percent per annum compound growth rate in the recent two decades. However, the academic investigations on asset securitization had a lag behind the securitization practice. In particular, there is a contradiction to explain the motivations and effects of asset securitization among some extant theories and models for asset securitization. The extant empirical studies on securitization are not sufficient. Further, these empirical results are in contradiction with many theories and models. This situation does not satisfy us. In view of the above-mentioned facts, this thesis argues that there are academic value and practical value to investigate the motivations and effects of asset securitization in theoretical and empirical methods. At the same time, the investigation is worthy significantly to use for reference to the Chinese capital market, in which bank asset securitization is only at the start.Based on the securitization data and financial data (2001:2-2006:4) of 53 bank holding companies in USA, this thesis first employs the econometric techniques to analyze the motivations and effects of bank asset securitization empirically. Then the thesis focuses on two special topics—bank's choice of asset securitization and bank's optimization of capital structure by using securitization.Summing up the results of theoretical models and empirical analyses in the thesis, the thesis shows that the increasing liquidity is the primary motivations which drives banks to securitize, and the liquidity enhancement and efficiency improvement are the effects of bank asset securitization. And the gains to securitize bank's assets are from the optimization of bank's capital structure.This thesis is divided into six chapters. Chapter 1 is the introduction of asset securitization. This chapter is the foundation and bedding of other chapters. In view of the difference between some securitization conceptions discussed in many academic articles, the chapter begins with the definition of asset securitization. Then it introduces the trading structure and process of asset securitization, the production categories of asset securitization, and the history and present condition of asset securitization.In Chapter 2, basing on the overview of the available literature, I sift the extant explanatory theories and empirical evidences for bank to securitize, and divide the motivations of asset securitization into seven reasons: increasing liquidity, regulatory capital arbitrage, saving funding cost, bank risk management, improving management efficiency, resolving information asymmetries, optimizing capital structure. Further, we analyze the motivations by adopting the econometric method to analyze asset securitization panel data (2001:2-2006:4) of 53 bank holding companies whose assets are more than $1 billion in the USA. Our empirical evidence shows the motivations for asset securitization by bank holding companies is only the increasing liquidity.Chapter 3 tests the effects of bank asset securitization. In this chapter, we sum up the extant empirical investigations on securitization. Considering the problems and limitations in the investigations, we test the effects by employing the econometric method to analyze asset securitization panel data of 53 bank holding companies whose assets are more than $1 billion in the USA. We find that the liquidity enhancement and efficiency improvement are the effects of bank asset securitization.Chapter 4 focuses on bank's choice of asset securitization. We develop a simple model to describe how a bank can securitize its assets to be used for liquidity and capital management. The model shows that the solving credit shock problems by securitization does so inefficiently, because it only lowers capital requirements by a small fraction of the securitized asset. By employing the securitization panel data of bank holding company in the USA, this chapter tests the power of the model. Our empirical results show that the liquidity shocks are addressed by subsequent quarter increases in securitization, so securitization is a tool for liquidity management. We find no evidence of securitization being used for credit or capital management.In Chapter 5, we focus on the relationship between asset securitization and bank's optimal capital structure, and investigate the effect of securitization onbank's optimization of capital structure. In theoretical model, we explain where the profits of asset securitization are from by using the purely financial synergies theory, which bases on the tradeoff model of optimal capital structure. The theory suggests that the change of financial leverage induces the change of benefit from tax shield and the change of bankruptcy cost and results in the change of the firm value. So the profits come from the net leverage effect mainly. In empirical tests, we analyze the profits resource and the financial characteristics of the securitized banks by employing the transaction data of asset securitization in USA. Our empirical results show that size of assets securitized, liquidity, and financial leverage are key factors for the profits of asset securitization. As a substitution tool of on-balance leverage with off-balance sheet leverage, asset securitization is a device to obtain purely financial synergies for most companies.The summary of the whole thesis is in Chapter 6. According to the empirical evidences and the theoretic results in Chapter 2-5, I sum briefly the historical experiences from bank assets securitization in USA. Then, based on the experience, I analyze the implications and inspirations to the development of asset securitization in China and discuss the development strategy of asset securitization in China.The innovations of this thesis can be showed in following aspects. First, based on the classifying the extant explanatory theories and empirical evidences for bank to securitize, we employ an appropriate econometric method to analyze asset securitization panel data from bank holding companies in the USA. Second, we build a simple model to describe how a bank can securitize its assets to be used for liquidity and capital management, and test the model by employing panel data of US bank holding company securitization. Third, we explain where the profits of asset securitization are from by using the purely financial synergies theory, which bases on the tradeoff model of optimal capital structure. Further, we test the explanatory power of the purely financial synergies theory by employing the transaction data of asset securitization in U.S.A..