Securitised loans are riskier than retained ones February 6, 2013 at 10:10 am
João Santos reports some interesting research on the NY FED’s blog:
We show that during the boom years of securitization, corporate loans that banks securitized at loan origination underperformed similar, unsecuritized loans originated by the same banks. Additionally, we report evidence suggesting that the performance gap reflects looser underwriting standards applied by banks to loans they securitize.
This is utterly unsurprising. What would be interesting to know is whether the current retention requirements fix this problem. My guess is that they don’t, as they are not big enough, but it is just a guess.