Motivation And Moral Hazard Of Commercial Banks' Credit Asset Securitization In China

The subsequent fallout of the subprime crisis of 2007 and the financial crisis following still exists,and the whole world has not got out of this recession.At the same time,the abuse of asset securitization and the serious moral hazard in the crisis has been studied and reviewed by scholars both inland and abroad.At present,the asset securitization market of our country is still at the initial stage and suffers from a series of problems,especially moral hazard.Without enough supervision the interest of investors and other market participants cannot be protected,while if there is too strict supervision,it may be quite possible that the motivation and enthusiasm to participate related business will be refrained and the function of securitization,such as revitalizing the stock and diversificating risks,can not be realized either.Hence,moral hazard of the securitization has become one of the most significant problems that hinder the healthy development of our nation's securitization market,as well as a major trouble to the regulators.So only by comprehensively identifying and analyzing the risks therein,can appropriate supervision and control measures be implemented to wipe off the hidden danger from securitization's moral hazard.In recent years,a large number of oversea documents study on the moral hazard and misconduct of securitization's participants,as well as the potential regulation measures,before and after the subprime mortgage crisis.Domestic scholars focus on therotical study and mainly analyze the moral hazard problems exposed in the subprime crisis,the supervision measures implemented and their enlightenment to our market.However,the ex post experience from abroad,neither can deal with the sustaining evolution of the moral hazard during the rapid development of our securitization market and the everlasting innovation of transaction structure,nor can be appropriate for our securitization market,which is still at the experimenting phase.In order to make up for the above problems,the classical logic of risk management,"risk identification-risk assessment-risk treatment",is used in this paper to study the moral hazard problem of our nation's credit assest securitization,which occupies the largest proportion of the securitization market.In detail,the following four questions are analyzed in this paper:(1)What is the motivation of the commercial banks to carry out the credit asset securitization?Based on these motives,what influence can the securitization come up with on the originating banks?(2)What kind of moral hazards may hide in the in the process of realizating the above influnce?And what are the characteristics and causes of the moral hazards?(3)Based on the daily operation data of commercial banks,can we find evidence of these moral hazards through empirical analysis?(4)According to the existence and characteristics of the moral hazards,what regulatory measures should be adopted?Are there any deficiencies and loopholes in the current regulatory mechanism in China,and how can we improve it?These four problems are closely linked and constitute a logically consistent and coherent system.Based on the above research,this paper comes up with the following conclusions:(1)Different from the current study based on the securitization market abroad,which consider that the motivation of banks' originating securitization is to realize the basid function of creating liquidity and transferring risks as well as regulatory arbitrage and improving profitability(Calimiris&Mason,2004;Dionne and Harchaoui,2008),this study,based on our nation's credit assest securitization market,shows that our securitization market is of obvious particularity,where the basic motivation of the securitization lies in the internal scale effect and the external drive of regulatory reform,rather than realizing those theoretical functions of seciuritization.(2)Despite that commercial banks' fundamental motivation for credit asset securitization motivation is not to create liquidity or transfer risks,the empirical results show that credit asset securitization can still significantly reduce the risk level of originators,but its impact on the liquidity level is not significant.It means that currently the main effect of credit asset securitization is to effectively reduce the risk level of originators by transferring risky assets out of the balance sheet,as well as the corresponding risks.(3)With the serious information asymmetry,the originators may derive a series of moral hazards during the realization of transferring risks.Before the transfer,the originators tends to use the information asymmetry to conceal the actual risk level of the underlying assets,thereby affecting the valuation of the securitization's investors,so as to obtain additional profits by getting higher issuue price.After the transfer,as the originators will not undertake the risks any more,they,still acting as the assets'custodian,may decrease their input of post-loan monitoring-Although it may reduce the banks'operating costs,the risks of the assets transferred to the investors will increase,which may lead to extra losses of investors.With the impact of these moral hazards,investors will be conscious of the potential extra losses and try to depress the price to cover them,which may finally create a lemon market.(4)With the existence of the above moral hazards,commercial banks tend to expand the scale of credit through repeating "lending-securitization-lending" and get extra profit,which leads to the credit expansion of the whole banking system.Therefore,this part of the credit,caused by asymmetric information and moral hazards,can be used to measure the existence of corresponding moral hazards.The empirical study following just shows that the part of credit is significantly positive,which means the moral hazards really exist in the process of risk transfer.What's more,the supervision system of our nation should be improved from many aspects according to the moral hazards' actual existence and characteristics.The innovation of this paper is mainly reflected in the following four aspects:firstly,according to the developing situation of China's securitization market and its institutional background,this paper reveals the different motivaitions between China's commercial banks' and those abroad.Secondly,by collating and analyzing the data of commercial banks' credit asset securitization,this paper study on the impact of securitization on the originators,making up the blank of the empirical research on the domestic securitization market.Thirdly,based on the detailed segments of risk transfer and the game theory model,the moral hazards of originators during the securitization are analyzed in the aspects of their causes and characteristics,and the existing evidence of the moral hazards are found.It not only expands the relevant theoretical research,but also makes up for the bland of research on the existence of securitization's moral hazards.In addition,the analysis and discussion of how to improve the regulatory mechanism based on these results is more specific and convincing compared to that of the literatures refering to foreign research results and experience.