Collateralized loan obligation (CLO) issuances in the United States increased by a factor of thirteen between 2009 and 2019, with the volume of outstanding CLOs more than doubling to approach $647 billion by the end of that period. While researchers and policy makers have been investigating the impact of this growth on the cost and riskiness of corporate loans and the potential implications for financial stability, less attention has been paid to the drivers of this phenomenon. In this post, which is based on our recent paper, we shed light on the role that insurance companies have played in the growth of corporate loans’ securitization and identify the key factors behind that role.
There’s ample evidence that securitization led mortgage lenders to take more risk, thereby contributing to a large increase in mortgage delinquencies during the financial crisis.
As the previous posts have discussed, financial intermediation has evolved over the last few decades toward shadow banking.
As Nicola Cetorelli observes in his introductory post, securitization is a key element of the evolution from banking to shadow banking.