Does securitization of corporate loans lead to riskier lending?

Vitaly M. Bord, João A. C. Santos

Research output: Contribution to journalArticle

13 Citations (Scopus)

Abstract

This paper finds that loans sold to collateralized loan obligations (CLOs) underperform matched unsecuritized loans originated by the same bank. We find that banks put less weight on the hard information on borrower risk available to them when they set interest rates on the loans they sell to CLOs, and that they retain less skin in the game on these loans, suggesting that lax underwriting standards contributed to the worse performance of securitized loans. We also find that the median non-CLO syndicate participant retains a lower stake in securitized loans when compared to loans that are not securitized, suggesting that these investors, like lead banks, expected securitized loans to perform worse.

Original languageEnglish
Pages (from-to)415-444
Number of pages30
JournalJournal of Money, Credit and Banking
Volume47
Issue number2-3
DOIs
Publication statusPublished - 1 Mar 2015

Keywords

  • CLOs
  • Loan performance
  • Loan spreads
  • Securitization

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