Deposit Competition and Mortgage Securitization

Mcgowan, Danny; Nguyen, Huyen; Schaeck, Klaus

Abstract

We study how deposit competition affects a bank's decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the US as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks' deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.

Citation

Mcgowan, D., Nguyen, H., & Schaeck, K. (online). Deposit Competition and Mortgage Securitization. Journal of Money, Credit and Banking, https://doi.org/10.1111/jmcb.13207

• Journal Article Type: Article
• Acceptance Date: Apr 23, 2024
• Online Publication Date: Oct 1, 2024
• Deposit Date: May 3, 2024
• Publicly Available Date: Oct 9, 2024
• Journal: Journal of Money, Credit and Banking
• Print ISSN: 0022-2879
• Electronic ISSN: 1538-4616
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1111/jmcb.13207
• Keywords: originate-to-distribute; securitization; deposits; competition * We are grateful for helpful comments and suggestions from the editor; Luc Laeven; two anonymous referees
• Public URL: https://durham-repository.worktribe.com/output/2432991