Research On The Impact Of CLO On The Stability Of Commercial Banks

Since China's economy entered the "new normal" of adjustment and shifting,the development of China's commercial banks has also faced multiple challenges and pressures from inside and outside.In order to cope with the decline in profits and the rise of non-performing ratios in recent years,and to provide banks with new sources of liquidity,China has restarted its credit asset securitization business.However,the financial crisis has also brought attention to a series of problems that may arise from credit asset securitization,such as the accumulation of credit risk,blind expansion of credit,adverse selection,and moral hazard.Therefore,it is urgent and meaningful to reexamine the relationship between credit asset securitization and bank stability,deeply study the basic functions of credit asset securitization,and explore whether it can improve the stability of commercial banks.This article takes the credit asset securitization activities of commercial banks in China as the research object.First,it combins and summarizes the relevant research results at home and abroad,and expounds the basic principles and mechanisms of the impact of credit asset securitization on bank stability from both positive and negative aspects.Second,the background,history and current situation of China's related business development were investigated and analyzed.The main part of the article uses a combination of empirical test and case study.On the one hand,this article selects the annual panel data of 69 commercial banks in China that initiated credit asset-backed securities at least once in 2004-2018,examines the overall effect of credit asset securitization on the stability of commercial banks and the impact channels.In addition,based on the different natures,the sample banks were classified and discussed ulteriorly;on the other hand,this article adopts a case study method,comparing and analyzing two typical credit asset securitization projects with a time span of ten years from the micro perspective of project design and implementation details,which support and supplement the empirical test results.The main conclusions of this article are:(1)Generally speaking,the development of credit asset securitization activities is conducive to improving the stability of China's commercial banks.The main way is to increase the stability of bank operations by reducing the volatility of bank earnings,but there is no evidence that credit asset securitization will definitely improve and increase bank earnings.At the same time,although credit asset securitization can improve asset liquidity,it is not reflected in banks' liquidity indicators.(2)There is an “inverted U” relationship between capital adequacy ratio and bank stability.The net interest income ratio and non-performing loan ratio are negatively related to bank stability.The return on net assets,deposit ratio,and loan interest rate are positive for bank stability.At the macro level,GDP growth rate and M2 growth rate are negatively correlated with bank stability.(3)Credit asset securitization has different effects and paths on the stability of different types of commercial banks.For large state-owned banks,credit asset securitization has a limited role in promoting its stability;for joint-stock banks and city commercial banks,credit asset securitization will significantly improve its stability;for rural commercial banks,credit asset securitization may reduce its stability.(4)From the perspective of credit asset securitization operation process and management methods,banks,as initiators,need to formulate a basic goal for project implementation according to their own development and operation management before advancing related businesses,customize a series of internal management measures,and establish a professional and independent credit asset securitization system.With regard to the selection of intermediary agencies,professional and experienced intermediaries can play a vital role in the successful launch of the project.In terms of the selection of basic assets,banks should comprehensively consider the market's issuance experience,the status of stock asset returns,the need for risk capital adjustment,future market capital prices and loan placement prices."Eligible" credit assets that can be securitized should have characteristics such as high degree of debtor diversification,high debtor credit level,large asset portfolio size,and high cash flow stability of the asset portfolio.Excellent and flexible product design,such as credit enhancement design,cash flow repayment order design,credit trigger mechanism design,and transaction mode design,can make the characteristics of the asset pool appear optimally,and even make up for the deficiency of the asset pool to a certain extent.Finally,according to the research conclusions,this article puts forward suggestions for optimizing China's credit asset securitization business from the level of commercial banks and the government,including clarifying the purpose of product issuance,establishing a unified management department,carefully selecting basic assets,designing products flexibility,rebuilding professional system,training professional talent team,improving credit upgrading system and related information disclosure system,etc.