importance of securitization
DESCRIPTION
Importance of Securitization. The Financial Crisis. Run on the Repos. The Financial Crisis. Regression Results. Roughly same results for repo spreads. Rise in LIB-OIS (proxy for counterparty credit risk in banking system) leads to increase in spreads. - PowerPoint PPT PresentationTRANSCRIPT
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Importance of Securitization
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The Financial Crisis
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Run on the Repos
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The Financial Crisis
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Regression Results
• Roughly same results for repo spreads. – Rise in LIB-OIS (proxy for counterparty credit risk
in banking system) leads to increase in spreads.• Repo haircuts depend on expected volatility in
underlying collateral– More expected volatility implies larger haircuts.
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Implications
• Problems in sub-prime market led to higher LIB-OIS.• Higher LIB-OIS lead to larger credit spreads on
securitized bonds and repos. • Higher credit spreads led to more uncertainty about
bank solvency and lower values for repo collateral. • Concerns about liquidity of bonds used for repo
collateral led to rising repo haircuts (equivalent to a bank run).