Securitization erased the functional boundary between commercial and investment banking
Evidence
Commercial banks, traditionally the most powerful ļ¬nancial institutions, look very different when their loans are merely temporarily illiquid assets intended to be resold on the market. Commercial banks traditionally took in deposits (or issued bonds) and used the proceeds to fund loans to borrowers. Their marble-pillared facĀøades conveyed a sense of permanence and security. But if the loan will be quickly resold, then the bank was little more than a one-time intermediary. There is little functional difference between underwriting a bond issue (which investment banks did) and issuing a loan that will be quickly resold and securitized (which is what commercial banks came to do). In this sense, the wall between commercial banking and investment banking erected by the Glass-Steagall Act had become largely moot. ā Gerald F. Davis & Suntae Kim, Financialization of the Economy, 47
Categorization
- XREF: Connects to the readerās finance background on securitization and the dismantling of Glass-Steagall in 1999. ā connects to: Securitization transforms debt from a personal bank relationship into an abstract market connection ā Gerald F. Davis & Suntae Kim, Financialization of the Economy, 46; The housing bubble traces to private securitization, not government GSE lending ā Philip Mirowski, Never Let a Serious Crisis Go to Waste, 888; Bank profits shifted from loan interest toward securities-packaging fees before the crisis ā Philip Mirowski, Never Let a Serious Crisis Go to Waste, 888 (+1 more)
Related
- Securitization transforms debt from a personal bank relationship into an abstract market connection (similarity 0.83)
- Bank profits shifted from loan interest toward securities-packaging fees before the crisis (similarity 0.80)
- Securitization moved loan repayment risk off bank balance sheets to outside investors. (similarity 0.79)
- The housing bubble traces to private securitization, not government GSE lending (similarity 0.78)