How exactly does this securitization influence the credit business and expansion period?
The very first effectation of securitization would be to move the credit chance of the loans through the banks’ balance sheets towards the investors through asset-backed securities (Gertchev, 2009). This ‘regulatory arbitrage’ enables institutions to circumvent book and money adequacy needs and, consequently, to improve their credit expansion. The reason being banking institutions need certainly to hold a level that is minimum of money in terms of risk-weighted assets. Whenever banking institutions offer the pool of high-risk loans up to an entity that is third they reduce the number of dangerous assets and boost their money adequacy ratio. The transfer of loans increases banks’ prospective to produce further loans without increasing capital. 11 by doing so
The part of shadow banking in credit expansion could be illustrated by the proven fact that assets within the shadow banking system expanded quickly prior to the crisis, from $27 trillion in 2002 to $60 trillion in 2007, which coincided with sharp development additionally in bank assets (Financial Stability Board, 2011, p. 8). […]