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...on 1 Prior to the financial crisis, securitization was one of the defining features of the financial landscape. Banks went from being delegated monitors of borrowers, monitored in turn by depositors (=-=Diamond and Dybvig, 1983-=-), to being essentially underwriters of their own loans and investors in other banks’ securitized assets. Securitization was thought to have stimulated loan supply, increased the liquidity of banks’ b...

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...ity needs to be tested empirically. The evidence on the whole supports the thesis that the rise of subprime mortgages was accompanied by a decline in lending standards (see Dell’Ariccia et al., 2008; =-=Mian and Sufi, 2009-=-; Keys et al., 2010; 2011). Despite the broadly convincing results supplied by these empirical studies, they have certain limitations that could give rise to doubts as to how far they can be generaliz...

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...nnot be credibly transmitted to the market when loans are securitized, banks might lack incentives to screen borrowers at origination or to keep monitoring them once the lending has been securitized (=-=Gorton and Pennacchi, 1995-=-; Morrison, 2005; Parlour and Plantin, 2007). There are also theoretical reasons why new issuance in loan secondary markets might collapse and the adverse selection problem might worsen when the colla...

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...hen loans are securitized, banks might lack incentives to screen borrowers at origination or to keep monitoring them once the lending has been securitized (Gorton and Pennacchi, 1995; Morrison, 2005; =-=Parlour and Plantin, 2007-=-). There are also theoretical reasons why new issuance in loan secondary markets might collapse and the adverse selection problem might worsen when the collateral values used to secure the underlying ...

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...olo, 2007). Borrowers from Southern Italy have a higher probability of default, corroborating the idea that this part of the country is distinguished by a higher “background risk” (see, among others, =-=Panetta, 2003-=-). And, as already shown in the literature, women borrowers have a lower probability of default (Alesina et al., 2009). Young borrowers (under 40) have a higher probability of default (for the U.S. se...

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...ity of banks’ balance sheets, allowed a broader range of investors to access a class of assets hitherto limited to banks and, by increasing risk diversification, to have improved financial stability (=-=Duffie, 2007-=-). The originate-to-distribute (OTD) model was also considered to have helped to satisfy a growing demand for safe assets (Caballero and Krishnamurthy, 2009). In fact, in 2006 the volume of asset-back...

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... monitoring borrowers. And since banks do not resort to securitization as a one-off process but deal with investors on a continuing basis, reputational concerns should deter them from selling lemons (=-=Fender and Mitchell, 2009-=-). In principle, while trying to burnish their own reputation, they might even choose to securitize loans of better-than-average (although unobservable) quality. Similar dynamics have been emphasized ...