Disentangling the impact of securitization on bank profitability

Abstract

Weempiricallyevaluatethechannelsthroughwhichsecuritizationimpactsbankprofitability.To this end, we analyze the role played by bank risk,costoffunding,liquidityandregulatorycapital in explaining the relationship between securitization and bank profitability. We find that securitization activities tend to boost profitability. We also show that bank risk, cost of funding, liquidity and regulatory capital individually and jointly act as transmission channels in the securitization-profitability relationship. In addition, we break down the securitization effects on bankprofitabilityintodirectandindirecteffectsandidentifythecontributionofeachindividual transmissionchannelintheoverallimpactonbankprofitability.Ourfindingshaveseveralimplicationsforbanks,financialmarkets,and regulatorKafrelsheikh University, Egyp