The predictive strength of MBS yield spreads during asset bubbles

We examine whether the predictive power of initial yield spreads of mortgage-backed securities (MBS) vary with the financial cycle. Using a cross-country sample of 4203 MBS, we find that initial yield spreads of MBS incorporate more information than credit ratings and predict future downgrades, even after conditioning on initial credit ratings. Predictive power of spreads is higher during credit and housing bubbles and for the least risky AAA-rated MBS. We find that initial yield spreads capture the magnitude of rating downgrades, especially during asset bubble periods. As a novel approach in this literature, we also utilise machine learning techniques (regression trees, naïve Bayes, support vector machines and random forests) to confirm our results

Securitization, bank behaviour and financial stability: A systematic review of the recent empirical literature

We systematically review the recent empirical literature to investigate whether and how securitization influences bank behaviour and its implication on financial stability. We find that, in the years preceding the 2007–2009 financial crisis, banks with higher credit and market risk were more likely to securitize assets. Banks became riskier and increased systemic risk as they took advantage of securitization in order to obtain capital relief. There is robust evidence indicating that mortgage securitization led to a deterioration in bank lending standards via weaker screening, lower denial rates, and misreporting of credit quality. For corporate loan securitization, the empirical findings on lax bank lending are inconclusive. However, it is evident that securitization resulted in poorer ex-post bank monitoring of corporate borrowers. Even though Europe is the second largest securitization market, there is a dearth of evidence on the impact of securitization on European banks' lending behaviour. Research is also very limited on the post-crisis regulatory incentive aligning mechanisms such as the risk retention requirements and the credit ratings reform. Finally, evidence on securitization activity in emerging markets, such as Latin America and China, where securitization volumes have been increasing recently, is relatively non-existent

Do reputable issuers provide better-quality securitizations

We examine the link between issuer reputation and mortgage-backed security (MBS) performance using a sample of 4,247 European MBS issued between 1999 and 2007. We measure performance with credit rating downgrades and delinquencies and track their changes over the long term. We find that, overall, MBS sold by reputable issuers are collateralised by higher quality asset pools which have lower delinquency rates and are less likely to be downgraded. However, as credit standards declined during the boom period of 2005-2007, asset pools securitized by reputable issuers were of worse quality compared to those securitized by less reputable issuers. Therefore, reputation as a self-disciplining mechanism failed to incentivise the production of high quality securities during the credit boom

Bank reputation and securitization quality: European evidence

JEL Classification: G21; G28.We examine the link between issuer bank reputation and the performance of mortgage-backed securities (MBS) in the European market. We find that MBS sold by reputable issuer banks are collateralised by higher quality asset pools with lower delinquency rates and are less likely to be downgraded. However, during boom periods – characterized by declining credit standards, MBS originated by reputable issuer banks tend to be collateralised by lower quality assets, compared to normal periods

Financial Inclusion in China: Use of Credit

Limited access to credit can cause financial vulnerability for a household and economic loss for a country. Previous studies have shown that only small portions of populations in developing countries use formal credit, but few studies have focused on Chinese populations. Analyzing data from the 2011 China Household Financial Survey, this study explored Chinese households’ credit use. Over half of the sample (53.21%) reported using credit, and only 19.77% of the sample used formal credit. Use of formal credit was associated with the socioeconomic characteristics of household heads (e.g., employment and education) and of households (e.g., income and net worth). The findings suggest that promoting financial inclusion in China involves expanding access to formal credit among socially and economically disadvantaged households

Securitization: past, present and future

This book aims to explore if and how securitisation changed financial intermediation and lending behaviour by reviewing the pre- and post-financial crisis theoretical and empirical literature. The book’s distinctive feature is bringing the growing post-crisis empirical evidence to the attention of a wider audience by critically appraising it against pre-crisis arguments. With its thought-provoking insights, this book is of particular interest for students, practitioners and academics

Ethnic minorities' access to mortgages in the UK: the undesirable impact of the Great Financial Crisis

We examine whether households from ethnic minorities have the same ability to access mortgages in the UK in the period after the Great Financial Crisis (GFC) of 2007-2009. Using a large sample of 20,121 households, we find that Black households are less likely to obtain mortgages in comparison to economically similar White households. Comparing our results to previous studies’ findings, we argue that Black households’ inability to access mortgages have deteriorated further in the post-GFC period

The orbit of consumer credit choices

Resulting from instability in the UK financial climate in recent times, consumers have increasingly turned to alternative credit sources such as payday loans, logbook loans (car title loans) and pawning. Recognising this increasingly important trend in UK society, this study explores how UK consumers manage and select alternative credit sources, through a Consumer Culture Theory lens. Primary data were sourced through a multi-stage interview process with ten consumers of alternative credit providers. Findings were subjected to a rigorous six-stage thematic analysis, which enabled generation of a three-ring orbit model showing how the consumers migrated between categories of credit sources. Furthermore, it was found that other concepts could be traced on to the orbit model, such as access to other credit sources, time pressures, perceived risk and emotional state. It is expected that the findings from this study will benefit lenders, policy makers and regulatory bodies from greater insights into understanding of the emotional state of their customers and the particularly the pressures they may be experiencing when taking last resort credit sources

Race and pain: A dual injustice

The evidence presented in this chapter highlights the existence of a dual injustice-members of nondominant racial groups are more than likely to experience pain, while these same individuals are also more than likely to have their pain discounted by and undertreated by healthcare professionals. Evidence is presented from numerous national, racial, and ethnic contexts, and this chapter utilizes evidence that crosses historical, social, psychological, biological, and medical research. The antecedents, consequences, causes, and potential solutions to this dual injustice are examined and discussed with the recognition that the literal pain and suffering of people of color is at stake