Securitization and Banks’ Capital Structure

Asset securitization offers banks the possibility of altering their capital structures and the financial intermediation process. This study shows that the introduction of securitization is associated with fundamental changes in the funding policies of banks. In particular, we present evidence of more intense use of securitization by banks (i) with stronger growth opportunities, (ii) with liquidity constraints, (iii) with costlier alternative sources of funding, and (iv) with restricted access to capital markets due to adverse selection. Securitization is also observed to be higher in the pecking order of financing choices of small and medium-size banks and non-listed banks, which are likely to face more severe adverse selection problems