How exactly does this securitization impact the credit business and expansion period?
The very first effectation of securitization is move the credit danger of the loans through the banking institutions’ balance sheets into the investors through asset-backed securities (Gertchev, 2009). This ‘regulatory arbitrage’ enables institutions to circumvent reserve and capital adequacy demands and, consequently, to enhance their credit expansion. The reason being banking institutions have to hold a minimal amount of regulatory money pertaining to risk-weighted assets. Whenever banking institutions offer the pool of dangerous loans to a 3rd entity, they reduce the number of dangerous assets and boost their money adequacy ratio. The transfer of loans increases banks’ prospective to generate further loans without increasing money. 11 by doing so
The part of shadow banking in credit expansion could be illustrated by the known proven fact that assets into the shadow bank system expanded rapidly ahead of the crisis, from $27 trillion in 2002 to $60 trillion in 2007, which coincided with razor- sharp development additionally in bank assets (Financial Stability Board, 2011, p. 8). Securitization creates, hence, the impression that those activities regarding the commercial banking institutions are less inflationary than they are really. In this manner banking institutions have the ability to grant the maximum amount of in brand new loans as credits which have been securitized, which weakens the web link between financial base and credit supply, and, in consequence, the part of financial policy. Put another way, securitization expands the availability of credit by increasing the availability of pledgeable assets. 继续阅读“II. The effect of Shadow Banking from the Traditional Banks’ power to Expand Credit”