The Securitization Of Commercial Banks In China: Motivations,Effects,Risks And The Prevention Of Risks

As one of the most important financial innovation,securitization plays the key role more liquid;for the other thing,securitization helps the commercial banks diversify their risks.Obviously,securitization would be beneficial for Chinese commercial banks as their traditional businesses face serious challenges.However,the worldwide financial crisis in 2008 makes this issue more controversial.As we know,the players in the securitization are vast and complicated,and the fundamental theories are complicated and abstruse;therefore,I will investigate at the aggregate level,and focus on the motivation,effects and risk prevention.First,I explore the economic motivation of the fast development of securitization in our country,focusing on interpreting the different securitization ratio among each commercial bank,which would be beneficial for how to keep the securitization ratio at a reasonable level.Based on the assumption of rationality,we prove,through marginal analysis,that higher cost would be a necessary condition securitization rather than keeping loans;additionally,I also prove that the lending rate does not directly influence the choice of securitization.Based on the historical data of I provide evidence that financing cost is significantly positively correlated with the securitization ratio,which is solidly supportive for our theoretical analysis;furthermore,I also show that the correlation between liquidity demand and securitization is less significant both economically and statistically.Based on our theoretical and empirical analysis,I conclude that rising cost is an important driven factor of the fast development of securitization,which implies that how to keep the financing cost at a reasonable level is essential for keeping the securitization ratio at an optimal level.Second,I investigate the effects of securitization on the commercial banks.Obviously,profitability and non-performing loans are two most important aspects of commercial banks,and thus I focus on the two factors.Based on the annul data,I demonstrate that there exist no significant linear correlations between securitization and profitability or non-performing-loans-ratio.However,the correlations are nonlinear.Specifically,the correlation between securitization and profitability is inverted Ushaped while the correlation between securitization and non-performing-loans-ratio Ushaped.The empirical results indicate that there would exist a potentially optimal securitization ratio,under which the effects of securitization is positive for the commercial banks,and such benefits would revert is the securitization ratio exceeds the optimal point.I believe that the optimal value depends on the unique endowment of underlying banks and thus should be different among different banks;therefore,this study emphasizes on how to incentivize the commercial banks to endogenously achieve the optimal level of securitization by themselves.Third,I investigate the risk of securitization and how to prevent such risk,and the latter issue is the key problem.Since and the real risk has never emerged,I explore the potential risk by logical deduction and literature review.Generally speaking,I believe that the risk can be well-prevented only by co-working of micro-mechanism and macro-monitoring.For the micro-level perspective,the conflict of each participant is an important source of risk;therefore,optimal contract solidly based on principal-agent theory would be a fundamental mechanism for preventing potential risk.Different from the existing literature,my research try to fit each kind of contract to its corresponding risk: I argue that deferred-payment contract would be applied if the risk mainly caused by the lesseffort screening on underlying assets,and I also solve for the most efficient paying time;I also argue that risk-retention contract would be applied if the risk mainly caused by moral hazard of financial institutions,and the optimal retention-proportion is also solved.Furthermore,I discuss on the advantage and disadvantage of each contract.Lastly,this study explores supervision countermeasures from macro perspective.I believe that the key aim of supervision countermeasures is to ensure the micro risk prevention mechanism works efficiently and solve the problems beyond the effective range of micro-mechanism.Based on the experiences of developed market,our supervision countermeasures are constructed from the following three aspects: risk monitoring,laws and regulations,and institutions.