Essays on banking, securitisation, financial regulation and stability

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Abstract

The thesis consists of three essays on empirical banking, with a particular focus on Europe in the aftermath of the global financial crisis. The essays analyse some current issues for the policy debate on securitisation, bank capital and funding liquidity, also by exploring the role of monetary policy and prudential regulation in shaping the incentives for banks’ behaviour.

The first chapter studies the capital management of originator banks, both when they distribute and when they retain the securitisation tranches. The analysis focuses on European banks sponsoring securitisation before and after the crisis and investigates the role of prudential regulation and of the collateral framework. In the pre-crisis period, originator banks observed an increase in their risk-based capital ratios particularly from the transfer of risky assets. In crisis time, securitising banks subject to tighter liquidity constraints obtained larger improvements in their risk-based capital ratios, especially after the issuance of securitisation products eligible as central bank collateral. Originator banks could exploit the regulatory arbitrage opportunities of the prudential framework, allowing for lower risk weights on retained securitisation positions than on the underlying securitised assets.

The second chapter studies the determinants for the issuance and the retention of asset-backed securities (ABSs) by Euro Area banks. I first study the relative incentives for the issuance of ABSs versus covered bonds. Then I analyse the potential drivers of the retention of ABSs by originator banks, with regard to monetary policy measures and financial markets developments. Non-standard measures expanding the amount of central bank liquidity increased the incentive to retain eligible ABSs particularly for banks in weaker liquidity conditions, as they were more interested in a securitise-to-repo strategy to increase the availability of collateral. In addition to this quantity effect, also the price effect of an increase in the interbank market spread – by reducing the relative funding cost of central bank liquidity - contributed to an increase in ABS retention for banks subject to stronger liquidity constraints.

The third chapter investigates the role of prudential regulation and supervision in the prevention of banking crises. We exploit the national differences in the capital regulation of EU countries thanks to the exercise of national options allowing for regulatory flexibility and supervisory discretion. We show that banks subject to a more lenient prudential framework displayed higher probability of requiring public support during the crisis. This reflected the transmission of the regulatory incentives via the risk-taking undertaken by banks in the management of their balance sheets.

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