This paper models the optimal riskiness of structured securitization deals. The deals are put together by “banks” that hold an equity piece of the deal and can exercise strategic options over the risk put into the deals. The banks face a tradeoff between the benefits of risk-taking now and...

This paper analyzes the risk-taking behavior of financial intuitions that have guarantees (e.g., banks with deposit insurance or Government Sponsored Enterprises with implicit guarantees) and/or institutions that find it beneficial to develop a reputation for not taking risk. For instance, banks...

We build a market equilibrium model of loan securitization as an alternative explanation of the cause of the recent Financial Crisis where there was initially deteriorating loan quality but coupled with aggressive securitization, and later investors “flight to quality” and market...

This paper models incentives for risk-taking by managers of banks or securitization deals. Of particular interest are risk-retention rules for producers of structured securitization deals, which have been mandated by the Dodd-Frank Act; the model can also be applied to bank managers. We show how...