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The ‘Security Pacific Letter’: Estimating The Causal Effect Of Securitization On Banks’ Systemic Exposure, Paul-Angelo Dell'isola
The ‘Security Pacific Letter’: Estimating The Causal Effect Of Securitization On Banks’ Systemic Exposure, Paul-Angelo Dell'isola
Dartmouth Undergraduate Journal of Politics, Economics and World Affairs
This paper aims to test the hypothesis of the ‘Safe Asset narrative’
which states that banks became manufacturers of pseudo safe assets to meet
a global shortage of safe assets in the pre-crisis period. In this narrative,
securitization is the mechanism which enables banks to become underwriters
of safe assets. This paper takes this hypothesis to the data and attempts to
estimate the causal effect of securitization on banks’ systemic exposure. In
particular, this paper exploits a regulatory change that occurred in 1987 when
the OCC expanded the scope of assets US national banks could securitize. By
using state-chartered banks …