Title: Modeling credit market interactions with securitization in an agent based stock flow consistent approach
Authors: Thomas Theobald - Macroeconomic Policy Institute (Germany) [presenting]
Abstract: An agent-based stock-flow consistent model is developed with an endogenously evolving firm-bank credit network. We focus on the credit market and take into consideration the securitization process through which corporate loans of the banks' balance sheets are converted to tradable bonds by selling a pooled tranche to a special purpose vehicle (SPV). Simulation runs show that the SPV may produce losses if a significant amount of firms go bankrupt. When the SPV collapses, the banks' equity ratios deteriorate by a significant amount that might raise the entire systemic risk and lead to bank insolvencies. This effect becomes greater the higher the proportion of securitized loans which in turn might affect real economic growth through frictions on the credit market.