Securitization and the Intensity of Competition

Mardi | 2009-02-19

Jung-Hyun AHN – Régis BRETON – Jean-Paul POLLIN

This article analyzes the motivation of loan securitization. Weshow that loan securitization can be used as a strategic tool to softenloan market competition. In a two – period loan market competitionmodel where banks strategically decide whether they acquire informationabout borrowers, banks’ strategic acquisition of informationprevents future competition by increasing informational asymmetrybetween relationship bank and external banks, on the one hand, butincreases ex ante competition for banks to obtain more market share,on the other hand. In this environment, banks can use securitizationas a tool to commit to reduce or even not to do monitoring in orderto soften ex ante competition. We demonstrate that securitization canmake banks collectively better o by increasing overall pro t to thedetriment of overall loan market e ciency.