The Review of Austrian Economics

, Volume 29, Issue 1, pp 67–84

Securitization and regulatory arbitrage within the ABCT framework

Article

DOI: 10.1007/s11138-015-0317-9

Cite this article as:
Giménez Roche, G.A. & Lermyte, J. Rev Austrian Econ (2016) 29: 67. doi:10.1007/s11138-015-0317-9
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Abstract

This paper discusses the consequences of securitization and how it links to the Austrian Business Cycle Theory (ABCT). The argument that securitization is behind fiduciary credit expansion preceding the 2008 crisis is incomplete. Consolidated balance sheet analysis demonstrates that securitization per se actually sterilizes the inflationary effect of previous fiduciary credits by transforming them into credits backed by voluntary savings. This sterilization stage is subsequently followed by new fiduciary credits issuance as securitization creates excess reserves and excess capital for banks. However, when securitization is used as a tool to implement arbitrage strategies of the Basel prudential rules, it enables banks to create more fiduciary credit while time preference remains unchanged. This creates the conditions for business cycle amplification.

Keywords

Business cycle Deposit insurance Regulatory arbitrage Refinancing Securitization 

JEL Classification

E32 E58 G01 G18 G21 

Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.Finance, Economics, and Law DepartmentGroupe ESC Troyes en ChampagneTroyesFrance
  2. 2.GRANEM, Faculté de droit, d’économie et de gestionUniversité d’AngersAngersFrance

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