bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

financial intermediary coalitions abstract in this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment it is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors private information core allocations these intermediaries which are coalitions of agents exhibit the following characteristics in equilibrium they borrow from and lend to large groups of agents they produce information about investment projects and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers

wheat and maize price policies in hungary tradeoffs between foreign exchange and government revenue braverman a hammer j s and morduch j j 1987 wheat and maizeprice policies in hungary tradeoffs between foreign exchange and government revenue agric econ 1 273 290 this paper reports on a methodology designed to examine the effects of selected agricultural policies in hungary the purpose of the paper is twofold the first is to explain the methodology dubbed multi market analysis in previous work which is implemented on personal computers to support discussions on policy reforms

lender screening and the role of securitization evidence from prime and subprime mortgage markets this article examines the link between mortgage securitization and lender screening during the boom and bust of the u s housing market using comprehensive data on both prime and subprime securitized and bank held loans we provide evidence that securitization affected lenders screening decisions in the subprime market for low documentation loans through two channels the securitization rate and the time it takes to securitize a loan the change in decision making by subprime lenders occurs on dimensions that are unreported to investors examining the time series evolution of the securitization market further reinforces these findings we exploit heterogeneity across subprime and prime markets to illustrate that the potential for moral hazard may be reduced with greater collection of hard information and increased monitoring of lenders our results suggest that the policy debate regarding securitization and lenders underwriting standards should separately evaluate the agency and non agency markets with special attention toward the extent of soft information in assets being securitized the author 2012 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

food policy food aid and structural adjustment programmes the context of agricultural development abstract there are two troubling aspects to structural adjustment programmes currently underway in developing countries first in the urgency to achieve short term objectives adjustment programmes often neglect long term concerns of sustained growth second the immediate impact of adjustments can lead to a deterioration in the income and nutritional status of the poor this article emphasizes the need for structural adjustment programmes that help set the stage for renewed economic growth and are sensitive to the well being of the poor it recommends a strategy of agricultural development to return developing countries to their comparative advantage in the production of labour intensive goods and to encourage overall growth furthermore it argues for the use of food aid to support that strategy and as a means to protect the poor from the hardships inflicted by adjustment programmes

credit derivatives in banking useful tools for managing risk abstract we model the effects on banks of the introduction of a market for credit derivatives in particular credit default swaps a bank can use such swaps to temporarily transfer credit risks of their loans to others reducing the likelihood that defaulting loans trigger the bank s financial distress because credit derivatives are more flexible at transferring risks than are other more established tools such as loan sales without recourse these instruments make it easier for banks to circumvent the lemons problem caused by banks superior information about the credit quality of their loans however we find that the introduction of a credit derivatives market is not necessarily desirable because it can cause other markets for loan risk sharing to break down

securitization and bank performance theory suggests that securitization provides financial institutions with an opportunity to lower the cost of funding improve credit risk management and increase profitability in practice however it might lead to adverse consequences through a number of indirect channels therefore the net impact of securitization on bank performance is ambiguous this study aims to evaluate whether banks improve their performance through the use of the securitization market by applying a propensity score matching approach in other words we build a counterfactual group of banks to assess what would have happened to the securitizing banks had they not securitized using us commercial banking data from 2001 to 2008 we first test these hypotheses using univariate analysis and find that securitizing banks are on average more profitable institutions with higher credit risk exposure and higher cost of funding however the propensity score matching analysis does not provide evidence of significant causal effects of securitization on the performance of banks therefore securitization does not seem to outperform alternative funding risk management and profitability improvement techniques used by banks that have ex ante similar characteristics to those securitizing our evidence raises important questions about the motives for banks increasing securitization activities and consequent implications for the banking system

potato led growth the macroeconomic effects of technological innovations in bolivian agriculture through the use of a computable general equilibrium model we measure the economy wide effects of improving the production technology of relatively non traded staples potatoes maize import crops wheat and export crops soybeans in bolivia the results of the analysis suggest that technological innovations in the production technology of potatoes would benefit the bolivian economy most we discuss the reasons for the limited effects of technological innovations in tradeable crops

alternatives to coca production in bolivia a computable general equilibrium approach pressured and aided by the united states bolivia has reembarked on a program to eradicate the cultivation of coca used for cocaine production over the next three years the united states plans to inject us soo million into bolivia to wean the country from producing drugs and replace the cultivation of coca with other crops and agricultural activities previous research has shown that coca cultivation and cocaine production benefits the bolivian economy de franc0 and godoy 1992 by raising income creating employment and increasing the availability of credit particularly for smallholders and the informal sector melvin and ladman 1991 given that the macroeconomic impact of a reduction in coca leaf production could devastate the economy the bolivian government has little economic or political incentive to eradicate coca a solution could be to find substitute crops and agricultural activities which would provide comparable levels and distribution of income we use a computable general equilibrium cge model to study the effects of alternatives to coca production the model contains 38 sectors and four social classes the model allows for a detailed assessment of the economic feasibility of switching from coca to other crops in the simulations we reduce coca production and allow each substitute to adjust to restore the real income of smallholders which existed before eradication twenty one crops are then ranked by the feasibility of the needed price and output change the effect on gross domestic product gdp inflation and workers real incomes the results of the simulations suggest that sugar cattle forestry and maize are the strongest candidates for a coca substitution program but there are practical complications in implementing each of the substitutes as will be discussed below indeed the results of this study justify the reluctance on the part of the bolivian authorities to fully cooperate with us efforts to eradicate coca section 2 provides the background to bolivia s coca dependence in section 3 we develop the model and in section 4 we present the equations and an explicit closure statement for the model the results of the simulations are discussed in section 5 the conclusion section 6 contains a discussion of the problems likely to surface in implementing alternatives to coca cultivation

a model of mortgage default in this paper we solve a dynamic model of households mortgage decisions incorporating labor income house price inflation and interest rate risk using a zero profit condition for mortgage lenders we solve for equilibrium mortgage rates given borrower characteristics and optimal decisions the model quantifies the effects of adjustable versus fixed mortgage rates loan to value ratios and mortgage affordability measures on mortgage premia and default mortgage selection by heterogeneous borrowers helps explain the higher default rates on adjustable rate mortgages during the recent u s housing downturn and the variation in mortgage premia with the level of interest rates

a study on risk retention regulation in asset securitization process abstract we study the impacts of the recently proposed risk retention regulation for asset securitization i e the issuer has to retain a certain proportion of securitized assets we also consider the frequently discussed measure to require the issuer disclose certain information of the securitized assets in a dynamic model with asymmetric information between a risk averse originating bank and a continuum of risk averse investors we find that it is impossible for a flat rate retention requirement to be optimal for all asset types although both risk retention and information disclosure regulations are effective in reducing investors informational loss neither can unconditionally enhance social welfare upon the unregulated case for both measures there are associated regulatory cost risk retention regulation aggravates adverse selection problem because it undermines the channel of informational revelation by the choice of securitization intensity and information disclosure requirement incurs a signalling cost by distorting banks securitization intensity in sending signals under an appropriate set of conditions we find that information disclosure requirement complements risk retention regulation when investors are sufficiently risk averse

emerging problems with the basel capital accord regulatory capital arbitrage and related issues in recent years securitization and other financial innovations have provided unprecedented opportunities for banks to reduce substantially their regulatory capital requirements with little or no corresponding reduction in their overall economic risks a process termed regulatory capital arbitrage these methods are used routinely to lower the eaective risk based capital requirements against certain portfolios to levels well below the basel capital accord s nominal 8 total risk based capital standard this paper discusses the principal techniques used to undertake capital arbitrage and the diaculties faced by bank supervisors in attempting to deal with these activities under the current capital framework 2000 elsevier science b v all rights reserved

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

a retrospective view of technological and other changes in philippine rice farming 1965 1982 much has been written about the impact of changes brought about through the introduction of semidwarf fertilizer responsive rice and wheat in asia the terms green revolution and miracle varieties suggest the dramatic effect anticipated from the new biological technology by both its supporters and detractors a great volume of literature has been generated describing the impact of these changes much of that literature is speculative some is theoretical and it would be fair to say much is cast in a tone with negative implications for new technology theoretical analyses necessarily balance simplifying assumptions with the richness of detail needed to capture the effects of technical and other changes while empirical analysis often shows what has happened but sheds little light on why it may have happened a recent review of the empirical literature shows that adoption of modern rice varieties in asia results in increased output has occurred quite evenly among farmers of all size groups and has resulted in modest increases in the use of labor per hectare of rice produced some empirical studies contrast areas that have adopted the technology with areas that have not thereby making the often false implicit assumption that all factors other than those specifically studied were similar other empirical studies concentrate on high adoption areas and use recall to infer how the introduction of technology may have changed variables of interest 2 there are a few pioneer studies available that contrast areas before and after the general adoption of specified technologies 3 this paper is a summary of ongoing research that provides data of the latter type researchers at the international rice research institute irri have monitored two sets of philippine rice producers for over 15 years during that period new rice technology was introduced and was

loan sales as a response to market based capital constraints models of bank loan sales often appeal to regulatory constraints to motivate this off balance sheet activity here we present a market based model of bank asset sales in which information asymmetries create the incentive for unregulated banks to originate and sell loans to other banks rather than fund them with deposit liabilities banks have a comparative advantage in locating and screening projects within their locality however because of private information banks can fund projects in their portfolio only to the extent that their capital can adequately buffer potential losses on these investments a loan sales market allows a banker having adequate capital to acquire profitable projects originated by a banker whose own capital is insufficient to support the additional risk

mass media and public policy global evidence from agricultural policies mass media play a crucial role in information distribution and in the political market and public policy making theory predicts that information provided by the mass media reflects the media s incentives to provide news to different groups in society and affects these groups influence in policy making the paper use data on agricultural policy from 69 countries spanning a wide range of development stages and media markets to test these predictions the empirical results are consistent with theoretical hypotheses that public support for agriculture is affected by the mass media in particular an increase in media television diffusion is associated with policies that benefit the majority to a greater extent and is correlated with a reduction in agriculture taxation in poor countries and a reduction in the subsidization of agriculture in rich countries ceteris paribus the empirical results are consistent with the hypothesis that increased competition in commercial media reduces transfers to special interest groups and contributes to more efficient public policies

bank size and risk taking under basel ii this paper discusses the relationship between bank size and risk taking under pillar i of the new basel capital accord using a model with imperfect competition and moral hazard we find that small banks and hence small borrowers may profit from the introduction of an internal ratings based irb approach if this approach is applied uniformly across banks however the banks right to choose between the standardized and the irb approaches unambiguously hurts small banks who are pushed towards higher risk taking due to fiercer competition this may even lead to higher aggregate risk in the economy

forecasting bankruptcy more accurately a simple hazard model i argue that hazard models are more appropriate than single period models for forecasting bankruptcy single period models are inconsistent while hazard models produce consistent estimates i describe a simple technique for estimating a discrete time hazard model i find that about half of the accounting ratios that have been used in previous models are not statistically significant moreover market size past stock returns and idiosyncratic returns variability are all strongly related to bankruptcy i propose a model that uses both accounting ratios and market driven variables to produce out of sample forecasts that are more accurate than those of alternative models copyright 2001 by university of chicago press

beyond export led growth abstract in light of the adverse conditions in the current international economic environment this paper reassesses the feasibility of continuing to rely on manufacturing export led growth as the major development dynamic for most ldcs during the next decade this paper argues that after the initial stages of industrial development the emphasis in policy toward agriculture should shift from surplus extraction to surplus creation and to the generation of demand linkages with the rest of the economy the author compares the relative merits of two alternative open development strategies export led industrialization and agricultural demand led industrialization adli by means of several simulation experiments the experiments are performed with a computable general equilibrium model of a small low income semi industrial open economy which is a stylization of south korea of 1963 they are carried out in an international environment assumed to represent the next decade based on a rate of growth of international demand for imports of about half the 1960 1973 rate the results support the adli approach on all counts

loan sales and the cost of bank capital this paper considers a model where banks may improve the returns on loans by monitoring borrowers bank regulation together with competitive deposit and equity financing can give banks an incentive to sell loans but the extent of their loan selling is limited by a moral hazard problem a solution is given for the optimal design of the bank loan buyer contract that alleviates this moral hazard problem an explanation is also given as to why some banks might buy loans and why loan sales volume has recently increased banks practice of making loans and then selling them to other institutions and individuals has grown in popularity an important example in the development of loan selling has been the increase in banks mortgage loans that are insured and pooled under the authority of the government national mortgage association gnma and then sold to secondary market investors recently however there has been a dramatic rise in the volume of other types of loans being sold especially by money center banks portions of commercial loans originated by these larger banks are being sold to smaller banks foreign banks and other financial and nonfinancial institutions in addition banks car loans and credit card receivables have also been pooled and sold to institutions and individuals selling loans that were once considered nonmarketable assets a process that has been termed asset securitization may be signalling the start of a fundamental change in the commercial banking business the leading banks in loan selling operations now view themselves more as originators and distributors of loans rather than as institutions holding loans as assets the potentially large impact of loan sales on the future of commercial banking naturally evokes the question of what incentives exist for banks to sell loans in this paper we show that loan sales allow some banks to finance loans less expensively than by traditional deposit or equity issue because bank funds received via loan sales can avoid costs associated with required reserves and

credit risk transfer in u s commercial banks what changed during the 2007 2009 crisis abstract following the debate on the role of credit risk transfer crt in exacerbating the 2007 2009 crisis this paper investigates the usage and effects of loan sales securitization and credit derivatives in u s commercial banks over the last decade with special emphasis on the financial crisis we find that in times of severe funding constraints the need to raise financial resources becomes the principal incentive behind crt we document some beneficial effects of crt on the economy since the funds released through crt are subsequently invested by banks to sustain credit supply also in recession however we report higher overall riskiness in banks that engage intensively in loans sales and securitization which translates into higher default rates during the crisis interestingly the benefits and drawbacks of crt are much stronger for loan sales and securitization than for credit derivatives

size and earnings volatility of us bank holding companies abstract we examine whether bank earnings volatility depends on bank size using quarterly data for bank holding companies in the united states for the period 1995q1 2010q3 and controlling for the quality of management leverage and diversification we find that bank size reduces return volatility however the effect is non linear when bank size exceeds a certain threshold about us 5 billion size is positively related to earnings volatility the recent financial crisis decreased the threshold beyond which the impact of size on volatility turns positive

is the market for mortgage backed securities a market for lemons this paper models and provides empirical evidence for the quality of assets that are securitized through bankruptcy remote special purpose vehicles spvs the model predicts that assets sold to spvs will be of lower quality lemons compared to assets that are not sold to spvs we find strong empirical support for this prediction using a comprehensive data set of sales of mortgage backed securities freddie mac participation certificates or pcs to spvs over the period 1991 through 2002 valuation estimates based on a structural two factor model indicate that pcs sold to spvs are on average valued 0 39 lower per 100 of face value relative to pcs not so sold for the four largest coupon groups in our full sample of freddie mac pcs we find a lemons spread of 4 6 basis points in terms of yield to maturity and this spread accounts for 13 45 of the overall prepayment spread of these securities jel d82 g13 g14 g21

securitization risk transferring and financial instability the case of spain abstract the 2007 2010 financial crisis has hit a variety of countries asymmetrically the case of spain is particularly illustrative as it exemplifies in a vivid manner most of the core issues largely responsible for the crisis this country experienced a pronounced housing bubble partly funded via spectacular developments in its securitization markets leading to looser credit standards and subsequent financial stability problems we analyze the sequential deterioration of credit in spain considering rating changes in securitized deals using a sample of 20 286 observations on securities and rating changes from 2000q1 to 2010q1 we build a model in which loan growth on balance sheet credit quality and rating changes are estimated simultaneously our results suggest that loan growth significantly affects on balance sheet loan performance with a lag of at least two years additionally loan performance is found to explain rating changes with a lag of four quarters importantly bank characteristics in particular observed solvency cash flow generation and cost efficiency also affect ratings considerably additionally these other bank characteristics seem to a higher weight in the rating changes of securities issued by savings banks as compared with commercial banks

structure of public support for national agricultural research systems a political economy perspective abstract this paper initiates development of a set of stylized facts concerning the structure of public support for national agricultural research systems nars within a neoclassical political economy framework the aim is to place public funding of nars in the broader context of the overall level of direct government assistance to agriculture using a newly constructed data set on nars expenditures over the 1970 1985 period we observe a growing disparity in agricultural research intensity ratios which measure the level of public support for nars in relation to agricultural gross domestic production aggdp between low and high income countries this growing disparity appears to be driven by much larger increases in support for agricultural research by high income countries coupled with a significantly slower growth in the size of their agricultural sector despite the propensity of low and middle income countries to increase real support to agricultural research as per capita incomes rise the public agricultural expenditure ratio which measures public expenditures on agriculture relative to the size of the agricultural sector aggdp increases substantially public expenditures on agriculture were indexed on agricultural and non agricultural populations to give a rough indication of the increasing incentives for rural distributional coalitions to seek a redistribution of public expenditures in their favor a relative research expenditure rre ratio is developed which measures the proportion of total public expenditure on agriculture spent on agricultural research it provides an indication of the relative importance given to research on agriculture within the constraints imposed by overall public spending on agriculture in contrast to the agricultural research intensity ratios the rre ratios suggest that agricultural research appears to command as large a share of the public purse devoted to agriculture in low and middle income countries as it does in high income countries expectations derived from the neoclassical political economy literature that research may have fared relatively better in high compared with low income countries were not supported by the data

loan sales and relationship banking firms raise money from banks and the bond market banks sell loans in a secondary market to recycle their funds or to trade on private information liquidity in the loan market depends on the relative likelihood of each motive for trade and affects firms optimal financial structure the endogenous degree of liquidity is not always socially optimal there is excessive trade in highly rated names and insufficient liquidity in riskier bonds we provide testable implications for prices and quantities in primary and secondary loan markets and bond markets further we posit that risk based capital requirements may be socially desirable the term collateralized loan obligations clos was coined in 1989 when corporate loans were first used as collateral in collateralized debt obligations cdos 1 since then the growth in loan sales has been enormous according to lucas et al 2006 1 1 trillion of cdos were outstanding as of 2005 and 50 of their collateral was comprised of loans in addition to pooled securities banks also trade first loss positions on single names through direct sales of individual loans in the united states loan sales have grown from 8 billion in 1991 to 154 8 billion by 2004 2 if a bank securitizes or sells a loan that it originated it is buying insurance on credit events over which it has either more control or more information than the buyer in the face of this informational friction why did the secondary market for corporate loans develop in the 1990s what effect has this had on relationship banking in this paper we characterize when a liquid secondary market for loans arises when a liquid secondary loan market is socially desirable and we provide testable predictions on the effect of the emergence of this market on prices and quantities in bond and primary loan markets our predictions are based on both changes in the parameters that lead to higher loan liquidity and changes in the contracts that are written between banks and firms given this higher liquidity

bank funding modes securitization versus deposits abstract we examine a bank s choice of whether to fund the loans it originates by emitting deposits or to sell the loans to investors with common knowledge of loan quality and laissez faire banking we find that the choice is irrelevant with asymmetric information but without government intervention we find that better quality assets will be sold securitized and poorer quality assets will be funded with deposits public regulation can influence the bank s choice subsidies can cause a bank to favor deposit funding but mutual funds and third party insurers may mitigate the effects of governmental subsidies

bank income structure and risk an empirical analysis of european banks the purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the european banking industry based on a broad set of european banks for the period 1996 2002 our study first shows that banks expanding into non interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans however considering size effects and splitting non interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities a higher share of trading activities is never associated with higher risk and for small banks it implies in some cases lower asset and default risks

short term safety or long term failure empirical evidence of the impact of securitization on bank risk based on a sample of u s commercial banks from 2002 to 2012 this paper shows that bank loan securitization has a significant and positive impact on both z scores and the likelihood of bank failure indicating a short term risk reduction and a long term risk increase effect we also find disparate impacts between mortgage and non mortgage securitization loan sale activities are found to have a similar impact to securitization

how loan portfolio diversification affects risk efficiency and capitalization a managerial behavior model for austrian banks abstract the aim of this paper is to analyze how diversification of banks across size and industry affects risk cost and profit efficiency and bank capitalization for large austrian commercial banks over the years 1997 2003 employing a unique dataset provided by the austrian central bank we test for several different types of managerial hypotheses formalized according to a modified version of the berger and deyoung model berger a n deyoung r 1997 problem loans and cost efficiency in commercial banks journal of banking and finance 21 849 870 we find that although diversification negatively affects cost efficiency it increases profit efficiency and reduces banks realized risk finally diversification seems to have a positive impact on banks capitalization

capital controls and bank risk abstract we analyze the effects of deposit guarantees on banks loan portfolio in contrast to earlier work we view bank loans net of evaluation and monitoring costs as non zero npv investments e g market securities deposit guarantees lead to inefficient investment and under plausible circumstances capital requirement increases lead banks to increase asset risk the risk increase reduces the beneficial effects of capital increases on the probability of default and on the economic efficiency of bank lending in some cases a tightening of the capital constraint even leads to an increase in the probability of default and financial instability and to higher expected costs of transferring assets to regulatory agencies increases in bank capital are not a substitute for risk monitoring and control and may imply an increased need for such surveillance

credit risk transfer and contagion some have argued that recent increases in credit risk transfer are desirable because they improve the diversification of risk others have suggested that they may be undesirable if they increase the risk of financial crises using a model with banking and insurance sectors we show that credit risk transfer can be beneficial when banks face uniform demand for liquidity however when they face idiosyncratic liquidity risk and hedge this risk in an interbank market credit risk transfer can be detrimental to welfare it can lead to contagion between the two sectors and increase the risk of crises

loan sales and the cost of corporate borrowing when a loan is sold it goes to a lower cost financing source than its originator yet lending markets are less than perfectly competitive despite the lower funding cost therefore the loan price is not necessarily more favorable to the borrower however corporate borrowers are averse to the participation of their loans to other lenders because of the complexity of dealing with multiple banks and the potential information costs of the sale announcement consequently i conjecture that the borrower extracts a price concession in exchange for allowing the bank to sell participations in the loan using a hand matched dataset of loans borrowers and lenders i find that the average yield spread on loans originated by active loan sellers is about 20 basis points lower than the average spread on loans originated by moderate loan sellers copyright 2006 oxford university press

securitization with recourse an instrument that offers uninsured bank depositors sequential claims abstract this paper expands on the observation that securitization with recourse offers a lender the protections of an uninsured bank deposit with an additional senior claim if the bank fails the senior claim derives from the commitment of the revenues from a group of securitized assets that pay off the securitized lender first thus securitization with recourse provides sequential claims for bank liability holders which improves the allocation of risk sharing among them securitization with recourse may also improve the selection of loans granted by partially offsetting the moral hazard incentives toward risk taking created by fixed rate deposit insurance empirical results are given which are consistent with the theoretical model

separating the likelihood and timing of bank failure abstract we use a split population survival time model to separate the determinants of bank failure from the factors influencing the survival time of failing banks basic indicators of a bank s condition such as capital troubled assets and net income are important in explaining the timing of bank failure however many of the other variables typically included in bank failure models such as measures of bank liquidity are not associated with the time to failure the results also suggest that the closure of large banks is not delayed relative to the closure of small banks

originator performance cmbs structures and the risk of commercial mortgages this article examines information and incentive problems that can exist in the market for commercial mortgages that are pooled and repackaged as commercial mortgage backed securities cmbss we find that mortgages that are originated by institutions with large negative stock returns in the quarters prior to the origination date tend to have higher credit spreads and default more than other mortgages with similar observable characteristics properties financed with these mortgages also exhibit weaker post securitization operating performance in addition stock price loser institutions are anxious to securitize mortgages they originate more quickly finally we find that credit rating agencies require higher levels of subordination for cmbs pools i e view these pools as riskier that include more mortgages originated by underperforming originators this evidence is consistent with reputation models in which poorly performing originators have less incentive to carefully evaluate the credit quality of prospective borrowers thereby letting relatively riskier mortgages pass through their weaker screening standards the author 2010 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press