Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/233937
Authors: 
McGowan, Danny
Nguyen, Huyen
Year of Publication: 
2021
Series/Report no.: 
IWH Discussion Papers No. 6/2021
Abstract: 
We provide novel evidence that regulatory-induced deposit market competition provoked banks to enter the securitisation market. Exploiting the state-specific removal of interstate bank branching restrictions across U.S states between 1994 and 2006 as an exogenous source of deposit competition, we document four key results. First, the interstate branching deregulation leads to an intensification of deposit market competition. Second, this rise in the cost of deposits increases the probability that a bank operates an 'originate-to-distribute' model by 6%. Third, the securitisation effect holds across bank asset classes but is most pronounced for mortgages. Finally, the results are strongest among small and single state banks owing to their reliance on deposit funding. The evidence is consistent with theories where increasing the cost of deposits creates incentives for banks to use securitisation as a cheaper loan funding model. The findings highlight a hitherto neglected supply-side explanation for the rapid expansion in securitisation before the financial crisis and speak to the debate about banking competition policy.
Subjects: 
competition
deregulation
OTD
securitisation
JEL: 
G21
G28
K11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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