Keywords
finance, financial institutions, securitization, structured finance
Abstract
Structured finance boomed during the run-up to the 2008 financial crisis. Highly rated, structured securities offered higher yield than other similarly rated bonds because of their concentration of systematic risk, but regulatory capital requirements did not account for this risk. As a result, regulated entities facing capital constraints had an incentive to invest in them. We show that life insurance companies exposed to unrealized losses from low interest rates in the early 2000s increased their holdings of highly rated securitized assets, consistent with regulatory arbitrage distorting the demand to hold these assets.
Original Publication Citation
Final Demand for Structured Finance Securities, with Taylor D. Nadauld and Philip E. Strahan, Management Science, 2017.
BYU ScholarsArchive Citation
Merrill, Craig B.; Nadauld, Taylor; and Strahan, Philip E., "Final Demand for Structured Finance Securities" (2017). Faculty Publications. 9113.
https://scholarsarchive.byu.edu/facpub/9113
Document Type
Peer-Reviewed Article
Publication Date
2017
Publisher
Management Science
Language
English
College
Marriott School of Business
Department
Finance
Copyright Status
© 2017 INFORMS
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