Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences

March 23, 2016

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Format: Chicago

Andrea Pescatori, and Juan Sole. Credit, Securitization and Monetary Policy: Watch Out for Unintended Consequences, (USA: International Monetary Fund, 2016) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We show evidence that interest rate hikes slowdown loan growth but lead intermediation to migrate from banks’ balance sheets to non-banks via increased securitization activity. As such, higher interest rates have the potential for unintended consequences; raising systemic risk rather than lowering it by pushing more intermediation activity to more weakly regulated sectors. In the past, this increased securitization activity was driven primarily byb private-label securitization. On the other hand, the government sponsored entities like Freddie Mac and Fannie Mae appear to react to higher policy rates by cutting back on their securitization activity but expanding loans to the Federal Home Loan Bank system.

Subject: Banking, Central bank policy rate, Financial institutions, Financial services, Loans, Monetary policy, Monetary tightening, Mortgages, Securitization

Keywords: Asset, Bank, Central bank policy rate, Federal funds rate, Financial intermediation, Financing FHLB bank, Global, Government sponsored enterprise, GSE, GSE assets, GSE securitization, Loans, Monetary policy, Monetary policy shock, Monetary policy shocks, Monetary tightening, Mortgage, Mortgages, Private-label ABS issuers, Proxy VAR, Securitization, Securitization activity, Securitization market, Shadow banking, VAR, WP

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/076
Stock No:

WPIEA2016076
ISBN:

9781475522723
ISSN:

1018-5941

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