Did the Securitization Contribute to the Release of the Subprime Crisis? Empirical Investigation of American Banks

In this paper we examine the hypothesis that the securitization, the act of converting illiquid loans into liquid securities, has largely contributed to an excess of risk taken by American banks on their subprime credit lending. Empirical investigation, conducted over a sample of 6775 US banks between 2003 and 2007, provides evidence to support this assumption. We additionally find that banks which securitize are also those experiencing a decreasing rate of profitability and a risk level higher than the average. Finally, this crisis seems to have a macroeconomic explication, also documented in previous studies, according to which the fall of the house price index since 2006 significantly deteriorates the US bank financial performance.