Determinants of banks' engagement in loan securitization

This paper provides new insights into the use of loan securitization. We analyzecollateralized loan obligation (CLO) transactions by European banks from 1997 to 2004and try to identify the influence that various firm-specific and macroeconomic factorsmay have on an institution's securitization decision. Our results suggest that loansecuritization is an appropriate funding tool for banks with high risk and low liquidity.It may also have been used by commercial banks to indirectly access investment-bankactivities and the associated gains. Regulatory capital arbitrage under Basel I doesnot seem to have driven the market.