Determinants of Canadian Banks Securitization Activity

Securitization is one of the most important developments in the international finance over the past twenty years and one of the most sophisticated tools of modern finance. The main goal of this study is to examine the statistical link between securitization and risk-based capital ratios. Our results show that any increase in securitization activities relative to on-balance-sheet activities causes a decline in both Tier 1 and Total risk-based capital ratios. This suggests that the risk of securitization is inefficiently taken into account in capital ratios or under-estimated by banks managers