Securitization, Leverage, Tranching, and International Capital Flows
نویسندگان
چکیده
We show that (i) different collateral requirements across countries in securitized markets lead to net international capital flows, and (ii) the ability to tranche asset-backed securities in one country leads to offsetting portfolio flows, creating gross financial flows. We use a general equilibrium model with two countries, collateralized borrowing, and securitized markets. Financial systems differ in the collateral requirement for loans and the ability to tranche asset-backed securities. Net financial flows increase the greater the difference between collateral requirements in each country. Tranching leads to gross flows, and the gross flows are larger the greater the difference between collateral requirements in each country. Exogenous fluctuations in collateral requirements and the introduction of tranching have important implications for both net and gross international flows.
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