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Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations
Author(s) -
LOUTSKINA ELENA,
STRAHAN PHILIP E.
Publication year - 2009
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.2009.01451.x
Subject(s) - securitization , market liquidity , financial system , business , balance sheet , secondary mortgage market , loan , collateralized mortgage obligation , mortgage underwriting , secondary market , shared appreciation mortgage , monetary economics , mortgage insurance , finance , economics , casualty insurance , insurance policy , stock exchange
Low‐cost deposits and increased balance sheet liquidity raise banks' supply of illiquid loans more than loans easily sold or securitized. We exploit the inability of Fannie Mae and Freddie Mac to purchase jumbo mortgages to identify an exogenous change in liquidity. The volume of jumbo mortgage originations relative to nonjumbo originations increases with bank holdings of liquid assets and decreases with bank deposit costs. This result suggests that the increasing depth of the mortgage secondary market fostered by securitization has reduced the effect of lender's financial condition on credit supply.