Financial Innovations and Banking Reform: Implications for banking without deposit insurance
Although bank loans themselves are somewhat illiquid because of private information, most of their cashflows are not. Recent financial innovations allow commercial loans to be liquefied via credit derivatives and actual and synthetic securitizations. The loan originating bank holds the remaining illiquid tranche containing the concentrated credit risk, private information rent and the excess spreadthat incentivize the bank to continue to monitor and service the loans. Empirically, we find that the average size of the residual tranche is about 3％, which reflects the size of the market determined capitalnecessary to support the liquefaction. The liquefaction of bank loans makes possible a banking system that restricts the guaranteed accounts to be backed by 100％ reserves and the non-guaranteed deposits to be backed by liquid securitized loan tranches, while retaining the deposit-lending synergy. Such a system is perfectly safe without deposit insurance and it renders banks bankruptcyremote without sacrificing a banks traditional role as a financial intermediary.
Securitization Collateralized Loan Obligations Credit Default Swap Deposit Insurance Narrow Banking Capital Requirement
Nai-fu Chen
GSM, University of California, Irvine, Ca 92697
国际会议
西安
英文
1-49
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）