Securitization by Galician Savings Banks: A comparative study

This work studies securitization as a structured product and its main applications in environment of credit institutions. Taking into account securitization as a key tool for risk transfer, and a low capitalization of savings banks in the Spanish context, this paper analyses whether securitization processes that have carried out savings banks, have had some influence in renewing these into banking groups and subsequent capital needs. Therefore, the empirical part studies the securitizations carried out by savings banks, in Galicia in the years prior to the financial reform process, Caixanova and Caixa Galicia, making a comparison with the two most important savings banks in Spain at that time, la Cake and Caja Madrid. Financial operations under analysis correspond to issuances of mortgage-backed securities; asset-backed securities; and securities backed by mortgage certificates, also called multi-assignor certificates. The data was used from 2001 to 2010. The Pearson's correlation coefficient is used to find associations between variables and the research hypotheses. Furthermore, we apply the partial correlation coefficient in order to eliminate the effect of some control variables; entity and year, in our case. We use biplot and scatter plot to represent the relationships between variables. Biplot is a multivariate statistical technique that considers the combined effects of different variables (securitization, liquidity, profitability, capitalisation, debt and risk). On the one hand, biplot shows that Cabo Galicia and Caja Madrid were getting much worse in terms of liquidity and profitability, and in recent years were again the worst entities in relation to the analysed variables (capitalisation, risk and profitability). On the other hand, Caixanova was the saving bank with the greater liquidity in the early years of the study, but its liquidity position was getting worse with the support of financial crisis, whereas la Caixa was the entity that best passed the effects of financial crisis. In addition, la Cabo had balanced values in the majority of variables over the time period. Scientific literature have supported us to purpose five hypotheses in our research: - Hypothesis 1: Entities with less liquidity use more securitization. - Hypothesis 2: Entities with more securitization use more the funding of Central Bank. - Hypothesis 3: Entities that take more risks are more likely to use securitization in order to transfer risks. - Hypothesis 4: Entities with less capitalization use more securitization. - Hypothesis 5: Entities with more securitization increase their profitability (ROE and ROA). Empirical evidence shows that savings banks with less liquidity have had a higher proportion of securitized assets on balance. We have also found that entities with more global securitization and those that have done through multi-assignor option, use more the funding of deposits in Central Banks. This result is consistent with the previous due to asset-backed securities can be used as collateral in Eurosystem credit operations. Entities have subscribed a part of securitizations that have originated to obtain funding in this way. On the other hand, our results do not allow us to fully confirm the hypothesis that entities with higher levels of risk are more likely to use securitization in order to transfer risks. We have found correlation among risk variables and multi-assignor securitization. However, the majority of risk operations was not transferred to other agents, but it was retained by originators entities. In addition, our study has not found relationship between less capitalization of savings banks and more securitization. Nor can we support the hypothesis that entities with more securitization increase their profitability, due to we have not found any positive and significant relationship among these variables. In conclusion, the search for liquidity seems to be the main factor that has led to savings banks of our sample to use securitization. On the other hand, the percentage of global securitization to equity does not mostly exceed 5%. So, defaults in securitization products would be perfectly acceptable by financial entities of our sample. According to the results, we highlight that securitizations made in the years of sample, were not the main cause about the transformation from savings banks to banks.