Covered bonds and bank portfolio rebalancing
(2021) In Norges Bank Working Paper Series 2021(6).- Abstract
- We use administrative and supervisory data at the bank and loan level to investigate the impact of the introduction of covered bonds on the composition of bank alance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift in bank lending from mortgages to corporate loans. Young and low-rated firms in particular receive more credit, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return on firm lending drive the results.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/bf04d0b3-44b0-4f29-b4ff-5688448cf1b8
- author
- Cao, Jin ; E. Juelsrud, Ragnar and Sondershaus, Talina LU
- publishing date
- 2021-09-09
- type
- Working paper/Preprint
- publication status
- published
- subject
- keywords
- Asset encumbrance, Covered bond, Portfolio rebalancing, Liquidity management, G21, G23, G28
- in
- Norges Bank Working Paper Series
- volume
- 2021
- issue
- 6
- ISBN
- 978-82-8379-201-0
- language
- English
- LU publication?
- no
- id
- bf04d0b3-44b0-4f29-b4ff-5688448cf1b8
- alternative location
- https://www.norges-bank.no/contentassets/3ec090cca40e407e9d340ade214a918b/wp_06_2021.pdf?v=09/09/2021161515&ft=.pdf
- date added to LUP
- 2022-09-21 11:49:19
- date last changed
- 2022-11-07 15:38:57
@misc{bf04d0b3-44b0-4f29-b4ff-5688448cf1b8, abstract = {{We use administrative and supervisory data at the bank and loan level to investigate the impact of the introduction of covered bonds on the composition of bank alance sheets and bank risk. Covered bonds, despite being collateralized by mortgages, lead to a shift in bank lending from mortgages to corporate loans. Young and low-rated firms in particular receive more credit, suggesting that overall credit risk increases. At the same time, we find that total balance sheet liquidity increases. We identify the channel in a theoretical model and provide empirical evidence: Banks with low initial liquidity and banks with sufficiently high risk-adjusted return on firm lending drive the results.}}, author = {{Cao, Jin and E. Juelsrud, Ragnar and Sondershaus, Talina}}, isbn = {{978-82-8379-201-0}}, keywords = {{Asset encumbrance; Covered bond; Portfolio rebalancing; Liquidity management; G21; G23; G28}}, language = {{eng}}, month = {{09}}, note = {{Working Paper}}, number = {{6}}, series = {{Norges Bank Working Paper Series}}, title = {{Covered bonds and bank portfolio rebalancing}}, url = {{https://www.norges-bank.no/contentassets/3ec090cca40e407e9d340ade214a918b/wp_06_2021.pdf?v=09/09/2021161515&ft=.pdf}}, volume = {{2021}}, year = {{2021}}, }