Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193529
Authors: 
Efing, Matthias
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 22
Abstract: 
This paper provides evidence for regulatory arbitrage within the class of asset-backed securities (ABS) based on individual asset holding data of German banks. I find that banks operating with tight regulatory constraints exploit the low risk-sensitivity of rating-contingent capital requirements for ABS. Unlike unconstrained banks they systematically pick the securities with the highest yield and the lowest collateral performance among ABS with the same regulatory risk weight. This reaching for yield allows constrained banks to increase the return on the capital required for an ABS investment by a factor of four.
Subjects: 
Regulatory arbitrage
asset-backed securities
reaching for yield
credit ratings
JEL: 
G01
G21
G24
G28
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-52-9
Document Type: 
Working Paper
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