A0612
Title: Securitization and bank risk: Evidence from CLO-funded syndicated loans
Authors: Andrea Civelli - University of Arkansas (United States) [presenting]
Santiago Barraza - ESCP Business School (Italy)
Abstract: The focus is on the causal effect on bank risk of bank reliance on collateralized loan obligations to fund business loan originations. We find that exogenous increases in liquidity in the CLO market significantly decrease bank expected default frequency for half a year, with a peak response about a quarter after the shock. The results highlight the soothing effect of securitization under favorable market conditions, as well as its distressing effect under market duress. The pro-cyclical nature of these effects calls for attention from both bank managers and policy-makers to the ever-growing use of CLOs.
