This research explores the effects of securitization on the market's perception of banks' risk exposure between 2002 and 2007. Our results show that, contrary to some prior evidence in the literature, securitizing banks actually had lower systematic betas until 2007. We find no evidence of...

We empirically examine three channels in the relation between banks' CDS trading and loan sales. The substitute channel predicts a negative relation between CDS hedging and loan sales, and the complementary channel predicts a positive relation. The credit-enhancement channel predicts a positive...

Do banks use credit default swap hedging to substitute for loan sales? By tracking banks' lending exposures and CDS positions on individual firms, we find that banks use CDS hedging to complement rather than to substitute for loan sales. Consequently, bank loan sales are higher for firms that...

We present an empirical study of stress testing for portfolios of auto loans. We find that loans aged five years or more have significantly higher default probabilities. This finding raises concerns about the increasing maturity of auto loans in recent years. A challenge in stress testing is the...

Banks' ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the...

Banks' ability to convert liquidity into lending depends crucially on the various regulatory constraints they face. This paper investigates the differential lending responses of banks with varying levels of reserves, and their impact on the real economy. The distribution of reserves within the...