The Effects of Securitization on Banks’ Performance: Evidence from Italy

This paper aims to study whether securitization leads to beneficial effects for the originator bank by increasing its performance, measured in terms of profitability and risk. We test i) whether the securitization leads to wealth effects for the bank’s profitability; ii) which effects the securitization produces in terms of banks’ risk. Our findings could have huge implications for banks management as well as for regulators.We analyze the securitizing Italian banks from 2000 (after the introduction of the Italian Law on Loans securitization in 1999) to 2009. We study the consequences of securitization on the profitability and the risk profile of the originators, both measured by traditional and more innovative indexes. A multiple regression model is adopted, in which performance indicators are, in turn, linked to a set of regressors including a securitization dummy, a previous securitization dummy and a vector of control variables. To test the robustness of our results, we develop different estimates, by considering alternative variables and by using an ordered probit model.Our study contributes to the literature on the effects of securitization for banks in several ways. First, despite the importance of the Italian securitization market, there is a research void on it. To date, Agostino and Mazzuca (2010) are the only authors who have analysed the securitization determinants in Italian market. The other empirical studies (mainly focused on the drivers and/or motivations for securitization) concern the U.S. market or, more recently, Europe, while there are still very few studies focused on individual countries in this important region (Martinez-Solano et al., 2009, and Cardone-Riportella et al., 2010, both considering the Spanish market). Second, we use an original and updated dataset. Third, our analysis covers both a pre-crisis period as well as a crisis period; highlighting any differences among different economic/financial phases and capturing the influence of financial crisis on bank’s performance represents an important research opportunity. Fourth, we apply an original methodology to test the effects of securitization: on one hand, we adopt the Z-score as performance measure and, on the other hand, we apply the (ordered) probit methodology as robustness test of our results.Consistently with the great part of the previous literature, we expect securitization having a positive impact on originator bank’s profitability (Greenbaum and Thakor, 1987; Pavel and Phillis, 1987; Donahoo and Shaffer, 1991; Lockwood et al., 1996; Thomas, 1999; Wolfe, 2000; DeMarzo, 2005; Agostino and Mazzuca, 2010; Martinez-Solano et al., 2009). According to the mixed results of previous literature (Passmore et al., 2001; Calem and LaCour, 2003; Dionne and Harchaoui, 2003; Calomiris and Mason, 2004; Ambrose et al., 2005; Franke and Krahnen, 2005 and 2007; Uzun and Webb, 2007; Uhde and Michalak, 2010; Nijiskens and Wagner, 2011), the effects of securitization on bank’s risk is still an empirical open question. When Roe is considered, our findings show that the securitization variables have an unexpected negative influence on bank’s performance. These conclusions are not confirmed when all the other performance measures are considered, because securitization results as not significant in explaining both the dynamics of the risk profile and of the Z-score of the sample banks.