So how exactly does this securitization impact the credit business and expansion period?
The very first effect of securitization is always to move the credit chance of the loans through the banking institutions’ balance sheets to your investors through asset-backed securities (Gertchev, 2009). This ‘regulatory arbitrage enables that are to circumvent book and money adequacy needs and, consequently, to enhance their credit expansion. The reason being banking institutions want to hold a level that is minimum of money with regards to risk-weighted assets. Whenever banking institutions offer the pool of dangerous loans to a 3rd entity, they reduce the number of dangerous assets and boost their capital adequacy ratio. By doing so, the transfer of loans increases banks’ possible to generate further loans without increasing money. 11
The part of shadow banking in credit expansion could be illustrated by the known fact that assets into the shadow bank operating system expanded quickly ahead of the crisis, from $27 trillion in 2002 to $60 trillion in 2007, which coincided with razor- sharp development additionally in bank assets (Financial Stability Board, 2011, p. 8). Læs videre II. The effect of Shadow Banking in the Traditional Banks’ capability to Expand Credit