Securitization as a response to monetary policy
This paper studies how monetary easing provides incentives for banks to take risk and issue mortgage‐backed securities (MBS) and, because MBS have the “lemon” property, why MBS buyers are willing to purchase high‐risk securities at high prices. Banks need equity to attract deposits. Monetary easing...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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John Wiley & Sons Ltd
2019
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| Online Access: | https://eprints.nottingham.ac.uk/56186/ |
| _version_ | 1848799288634638336 |
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| author | Zhang, Jiarui Xu, Xiaonian |
| author_facet | Zhang, Jiarui Xu, Xiaonian |
| author_sort | Zhang, Jiarui |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | This paper studies how monetary easing provides incentives for banks to take risk and issue mortgage‐backed securities (MBS) and, because MBS have the “lemon” property, why MBS buyers are willing to purchase high‐risk securities at high prices. Banks need equity to attract deposits. Monetary easing reduces this need, and banks leverage up and reduce their monitoring efforts. The internal need for liquidity and risk sharing motivates banks to issue MBS. Security buyers understand the moral hazard problem that banks face but are willing to purchase bank securities at high prices because monetary easing would also reduce their cost of funds. |
| first_indexed | 2025-11-14T20:33:17Z |
| format | Article |
| id | nottingham-56186 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:33:17Z |
| publishDate | 2019 |
| publisher | John Wiley & Sons Ltd |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-561862019-02-27T03:29:16Z https://eprints.nottingham.ac.uk/56186/ Securitization as a response to monetary policy Zhang, Jiarui Xu, Xiaonian This paper studies how monetary easing provides incentives for banks to take risk and issue mortgage‐backed securities (MBS) and, because MBS have the “lemon” property, why MBS buyers are willing to purchase high‐risk securities at high prices. Banks need equity to attract deposits. Monetary easing reduces this need, and banks leverage up and reduce their monitoring efforts. The internal need for liquidity and risk sharing motivates banks to issue MBS. Security buyers understand the moral hazard problem that banks face but are willing to purchase bank securities at high prices because monetary easing would also reduce their cost of funds. John Wiley & Sons Ltd 2019-02-21 Article PeerReviewed application/pdf en cc_by https://eprints.nottingham.ac.uk/56186/1/Securitization%20as%20a%20response%20to%20monetary%20policy.pdf Zhang, Jiarui and Xu, Xiaonian (2019) Securitization as a response to monetary policy. International Journal of Finance & Economics . ISSN 1076-9307 monetary policy; mortgage‐backed securities; risk taking http://dx.doi.org/10.1002/ijfe.1721 doi:10.1002/ijfe.1721 doi:10.1002/ijfe.1721 |
| spellingShingle | monetary policy; mortgage‐backed securities; risk taking Zhang, Jiarui Xu, Xiaonian Securitization as a response to monetary policy |
| title | Securitization as a response to monetary policy |
| title_full | Securitization as a response to monetary policy |
| title_fullStr | Securitization as a response to monetary policy |
| title_full_unstemmed | Securitization as a response to monetary policy |
| title_short | Securitization as a response to monetary policy |
| title_sort | securitization as a response to monetary policy |
| topic | monetary policy; mortgage‐backed securities; risk taking |
| url | https://eprints.nottingham.ac.uk/56186/ https://eprints.nottingham.ac.uk/56186/ https://eprints.nottingham.ac.uk/56186/ |