Dis-integrating credit markets: diversification, securitization, and lending in a recovery

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 23 September 2016

Working Paper No. 617
By Matthieu Chavaz

Using exogenous variation in exposure to hurricanes, this article explores how differently diversified US banks lend during the protracted recovery from a major downturn. Compared to diversified banks, local banks (i) originate a higher share of new mortgage and small business loans in affected areas, but (ii) sell a higher share of the new mortgages into the secondary market. These results suggest a pattern of specialization, whereby loans in affected areas are increasingly originated by banks with special abilities or incentives to seize opportunities in a distressed market, but increasingly transferred to agents which can better support the associated risk.

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