The Impact Of Asset Securitization On The Liquidity Risk Of Commercial Banks

As one of the most unique financial innovations in the 20 th century,asset securitization was one of the primary purposes of its design to provide liquidity to commercial banks and reduce liquidity risks.However,when asset securitization became one of the main means for commercial banks to obtain liquidity,commercial banks gradually changed their mode of operation,reduced liquidity buffers,increased risky loan issuance,and enhanced bank risk appetite.Once the asset securitization market is impacted and gradually shrinks or even collapses,the secondary market risk can easily be transmitted to the primary market,resulting in the inability of asset securitization to issue smoothly.Commercial banks' behaviors due to the increase in risk appetite may trigger liquidity risk because asset securitization cannot provide the required liquidity.Preventing systematic financial risks is an eternal theme of financial work.The 19 th Party Congress will keep the bottom line of not taking systemic financial risks into government work reports,showing that China has learned lessons from the financial crisis and has taken the initiative to put financial risks in a more important position.This paper analyzes the ways and mechanisms for the transmission of asset securitization to liquidity risk in order to provide targeted supervision and monitoring recommendations for regulatory authorities and commercial banks,reduce the side effects of the development of asset securitization,reduce the liquidity risk of commercial banks,and effectively prevent financial systemic risk.This paper sorts out and summarizes the related research results of asset securitization and commercial bank liquidity risk.The study found that asset securitization convert loans into standardized securitization products,help to eliminate information asymmetry,and reduce transaction costs for issuers and investors.However,with the continuous development of securitization and the continuous extension of the transaction chain,the problem of new information asymmetry has also emerged.Only by increasing the transparency of the underlying assets and packaging layering process through supervision,we can fundamentally reduce the side effects of information asymmetry.Asset securitization shifts the on-balance sheet loans out of the table while transferring the risks to other financial institutions,and reduces the capital occupation on the table,which in part promotes financial prosperity.However,with the continuous introduction of regulatory rules,whether the reduction in capital occupation will depend on the regulatory capital requirements for exposure to a given asset securitization risk,that is,the internal ratings law regulatory capital requirements(KIRB)prior to the securitization of basic assets,and the The credit enhancement level(L),the thickness of the grade(T),the effective amount of risk exposure of the asset pool(N)and the weighted average default loss rate of the asset pool.From the perspective of the reality of asset securitization in China,most of the asset securitization products circulate in the interbank market and are almost purchased by commercial banks.Therefore,the risk has not been transferred out of the banking system.So,this hypothesis also has certain doubts.As for the specific impact of asset securitization on financial institutions such as commercial banks,scholars have not reached a consensus,but most agree that asset securitization can help commercial banks to replace liquidity.However,this kind of replacement behavior just accumulated the liquidity risk.The acquisition of convenient liquidity will have an incentive effect,stimulate commercial banks to increase their risk appetite,reduce liquidity buffers,and expand risk assets.When there are ways to replenish liquidity in a timely manner,it seems unnecessary to hold liquidity buffers which has no revenue.Therefore,reducing liquidity buffer has become the primary choice for commercial banks.As a high-leverage operating company,banks have their own internal driving force in pursuing profit maximization.Therefore,the use of liquidity obtained by securitization to expand risky loans is also a major choice for commercial banks.These behavioral distortions caused by asset securitization continue to accumulate liquidity risks,and have laid a hidden danger for the crisis.From a logical point of view,asset securitization,as a new development tool for liquidity management of commercial banks,has a certain degree of inevitability in influencing and changing the business behavior of commercial banks to some extent.Liquidity risk management tools are rich in content,but asset securitization has become one of the important options for commercial banks to supplement liquidity.The Chinese banking system is characterized by ample liquidity but a structural shortage,and liquidity risk is more concentrated on asset-liability mismatches.Asset securitization can improve the liquidity structure of commercial banks and the mismatch of assets and liabilities.However,the pro-cyclical nature of liquidity and the profit-driven characteristics of commercial banks determine that asset securitization will inevitably increase bank risk appetite and increase liquidity risk.The transaction chain of asset securitization is too long and the nesting phenomenon is serious,and the securities products after tiering can also be used as basic assets to re-securate the assets,resulting in a multiplication of leverage and multiplying the realities through nesting.The risk has left a huge hidden danger.The process of credit enhancement through rating companies also weakens the attributes of the underlying assets to a certain extent,and weakens their risks.The emergence of asset securitization has changed the initial motive and purpose of commercial banks to carry out specific businesses,and has constantly adjusted their business behavior based on the liquidity that asset securitization can provide.As a company pursuing profit maximization,commercial banks have the incentive to choose high-risk and poor-quality loans to expand and maximize their benefits.However,the final change in behavior can easily lead to the outbreak of liquidity risk,and even the possibility of liquidity crisis.This paper establishes a model of bank runs against depositors in a simple economy to explore the impact of asset securitization on the liquidity risk of commercial banks.Banks use asset securitization to sell the loans issued at the beginning to the investors in the securitization market.Commercial banks obtain liquidity and investors obtain stable expected returns.At this time,there are generally two kinds of liquidity use obtained by commercial banks: one is to act as a buffer for liquidity,and to increase the liquidity safety mat;the other is to continue to expand assets and increase loans according to credit creation theory.Commercial banks have a pro-cyclical nature of liquidity,and only after the crisis did commercial banks tend to improve their liquidity safety pads.Asset securitization can provide liquidity when banks need liquidity,so banks are more inclined to reduce non-recurring liquidity buffers,expand profitable assets,and increase risky loan issuance.The theoretical model of this paper also proves that asset securitization raises the liquidity risk level of commercial banks by reducing the liquidity buffer within the table and increasing the risk of loans,resulting in the banks being unable to provide sufficient liquidity in the face of liquidity shocks such as depositors' run.A breach of contract occurred until bankruptcy.From the perspective of empirical tests,the LMI(liquidity mismatch index),which measures the liquidity risk of commercial banks at the international level,is used as the proxy variable for liquidity risk in this paper.For the asset securitization business,this paper uses the securitisation issue dummy variable and securitization issuance strength as proxy variables.The empirical regression was performed using the PSM(Propensity Score Matching)and GMM(Generalized Method of Moments)or a combination of both.Empirical research shows that the dummy variables and strength indicators of asset securitization have significantly increased the liquidity risk of commercial banks,and asset securitization has reduced the liquidity buffer through the profit-seeking characteristics of commercial banks and the formation of stable expectations,thereby strengthening commercial banks.Liquidity risk.The asset securitization issuance has significantly increased the level of bank risk loans while improving the risk preference of commercial banks.The fixed-effect regression model concluded that asset securitization spills over liquidity risk by increasing commercial bank risk loans,and to a certain extent,to increase the level of liquidity risk and agglomerate liquidity crises.According to the research conclusions,this article proposes policy recommendations from both regulatory authorities and commercial banks.For regulatory authorities,it is necessary to further strengthen supervision of commercial bank asset securitization business,gradually establish a dynamic,full-coverage risk supervision mechanism,and timely introduce and improve regulatory guidelines for information disclosure in asset securitization businesses.Effectively prevent and resolve the single commercial bank risk and banking system crisis caused by asset securitization.For commercial banks,they should pay close attention to changes in their own asset-liability structure,rationally optimize the composition and duration of their assets and liabilities,and try to avoid liquidity imbalances of assets and liabilities caused by high-risk business operations such as credit expansion after asset securitization and reduction in liquidity buffers.Ensure that the asset-liability structure is in a relatively reasonable state.Commercial banks must have a clear and correct understanding of the positive and negative effects that the asset securitization business may bring,and look at asset securitization from a long-term and overall strategic perspective.They can both rationally use asset securitization and can always use asset securitization.The risk of coming to stay vigilant.