CEPR Discussion Paper: 'Securitisation Without Risk Transfer'

17 January 2012

This paper analyses asset-backed commercial paper conduits, which experienced a shadow-banking "run" and played a central role in the early phase of the financial crisis of 2007-09.

The authors document that commercial banks set up conduits to securitise assets worth $1.3 trillion while insuring the newly securitised assets using explicit guarantees. They show that regulatory arbitrage was the main motive behind setting up conduits: the guarantees were structured so as to reduce regulatory capital requirements, more so by banks with less capital, and while still providing recourse to bank balance sheets for outside investors. Consistent with such recourse, the authors find that conduits provided little risk transfer during the "run": losses from conduits remained with banks rather than outside investors, and banks with more exposure to conduits had lower stock returns.

Full paper

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