Securitizations with Recourse, the Liquidity Needs of Banks and the Manipulation of Earnings
Speaker
Abstract
| In this paper we argue that banks use securitization constructions conditional on their specific requirements. We focus on securitization contracts folios in which issuing banks guarantee the principal amount to the buyer. We argue that such a securitization contract can be used for both liquidity planning purposes as well as for earnings manipulations. Our evidence supports our predictions. Banks use such securitizations to meet liquidity needs. Banks using this instrument are typically sufficiently solvent to fulfill the contract. Furthermore our results indicate that for a subsample of banks liquidity planning does not appear to be the driver for these securitization transactions but the manipulation of reported performance is. |
| Contact information: |
| Paulo Perego |
