Does securitization affect banks' liquidity risk? The case of Italy

We explore the relationship among securitization and liquidity position (inverse measure of the liquidity risk) in banks, by answering the following research questions: does securitization affect the originator bank? Does securitization produce consequences on the bank’s liquidity? We focus on a sample composed of all the Italian banks that placed at least one securitization during the period 2000-2009. Our dataset is hand-collected, original, and complete. To test our research hypotheses, using different specifications and estimation methods, we adopt an ordered probit model, in which changes in the originator banks’ liquidity are linked to a set of regressors, including two securitization dummy variables (securitization and previous securitization), plus a vector of control variables. The results prove that securitization has statistically positive effects on the liquidity of the originator banks (inverse relationship with the liquidity risk), while the previous securitization variable is less relevant. Furthermore, the results indicate that in the pre-crisis years (2000-2006), securitization determines the most important effects with respect to what happens for the overall period (2000-2009). Unexpectedly, the mergers and acquisitions (M&A) variable is strongly significant and negatively affects the liquidity of the sample banks. The results of the different sensitivity analyses we perform generally confirm the main regression results. The findings of this research show that securitization does not produce the negative effects associated with it, confirming its effectiveness as a financial tool for the asset management activity (and for the funding as well) of the financial intermediaries.