Agency problems in securitizations

• Applicant: Professor Dr. Martin Hibbeln
• Subject Area: Accounting and Finance
• Term: from 2019 to 2023
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 434130478

In this project, the applicant investigates agency problems in the context of loan securitization, especially mortgages-backed securities. The agency problems resulting from such securitizations have significantly contributed to the financial crisis. Since then, various regulatory actions have been taken to counteract these problems and to restore investors’ confidence, such as: retention of 5 % of the deals’ volume and the so-called STS-regulation (“simple, transparent, standardized”). Even before introducing retention, it was disputed if a retention would be suitable for harmonizing interests of investors and originators. This project aims to examine which agency problems exist in the securitization market and whether the regulatory actions lead to a meaningful reduction of agency problems. The by now availability of loan-level information makes these analyses possible. For this purpose, this project examines, first, the impact of retention on the quality of securitized loans at the time of securitization. Second, after securitization, the impact of retention on banks’ behavior within the monitoring and workout process is analyzed. Third, the project examines if the complexity of securitizations, particularly w. r. t. the transparency of investment prospectuses, provide an indication on the deals’ performance. Fourth, it is analyzed whether the increased transparence requirements of the STS regulation lead to an effective reduction of agency problems.

• DFG Programme: Research Grants