Study Of How Securitization Impacting The Credit Risk Of Commercial Banks

May 17th,2012,<Notice about the further expansion of credit asset securitization pilot and relevant> was jointly issued by the Ministry of Finance, People’s Bank of China and the China Banking Regulatory Commission, which re-opened the experiment that was halted by global financial crisis five years ago. Securitization was considered as a tool to pass the credit risk from the beginning, and could play a positive role to reduce credit risk in commercial banks. While Credit Default Swap (CDS), as one kind of securitization bonds, was the culprit in the 2007 global financial crisis. Is securitization good for credit risk management of commercial banks or not? Will the securitization re-opening in China be a great development opportunity for commercial banks, or lead to another round of financial crisis? This paper tries to discuss how securitization impacts the credit risk of commercial banks, in both theoretical and empirical aspects.This paper firstly introduces the history and characteristics of securitization, and highlights its history in China, including the origin, development stages and milestones. The second chapter analyzed how securitization affects the credit risk of commercial banks from four aspects:1, transfers credit risk thus reducing non-performing loan ratio; 2, reduces the average maturity of loans to decrease the maturity mismatch ratio; 3, improves the capital adequacy ratio of commercial banks; 4, requires commercial banks to disclose the related information, thus forcing commercial banks to improve operation condition, and reduce the credit risk objectively. The third chapter conducts the causality analysis based on more than 35,000 samples from 2000 to 2012 in the U. S. market, and verifies the incensement of loan securitization size will raise the capital adequacy ratio and risk management capabilities. Next, conducts the regression analysis based on Chinese market data, and verifies the incensement of securitization scale can reduce the non-performing loan ratio and increase the provision for non-performing loans. This confirms the theoretical analysis made in prior chapter. Finally, this paper analyzes the existing credit risk issues in commercial banks, discusses the feasibility of issue resolution by securitization one by one, and proposes regulatory and policy advices.The main contribution of this paper is:based on the real situation in China, proposes how securitization impacts the credit risk of commercial banks in China. In the meanwhile, conducts empirical analysis of the U.S. and Chinese markets, and verifies the results. This deficiency is:due to the lack of data of Chinese market, some further empirical analysis is missing.