Deposit competition and mortgage securitization

Danny  McGowan; Huyen Ngyuen; Klaus Schaeck

doi:10.1111/jmcb.13207

Deposit competition and mortgage securitization

Danny McGowan
, Huyen Ngyuen^*
, Klaus Schaeck^*

^*Corresponding author for this work

Research output: Contribution to journal › Article (Academic Journal) › peer-review

1 Citation (Scopus)

Abstract

We study how deposit competition affects a bank’s decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the US as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks’ deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.

Original language	English
Pages (from-to)	497-532
Number of pages	36
Journal	Journal of Money, Credit and Banking
Volume	58
Issue number	2
Early online date	1 Oct 2024
DOIs	https://doi.org/10.1111/jmcb.13207
Publication status	Published - 1 Mar 2026

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© 2024 The Author(s). Journal of Money, Credit and Banking published by Wiley Periodicals LLC on behalf of Ohio State University.

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title = "Deposit competition and mortgage securitization",

abstract = "We study how deposit competition affects a bank{\textquoteright}s decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the US as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks{\textquoteright} deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.",

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N2 - We study how deposit competition affects a bank’s decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the US as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks’ deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.

AB - We study how deposit competition affects a bank’s decision to securitize mortgages. Exploiting the state-specific removal of deposit market caps across the US as a source of competition, we find a 7.1 percentage point increase in the probability that banks securitize mortgage loans. This result is driven by an 11 basis point increase in deposit costs and corresponding reductions in banks’ deposit holdings. Our results are strongest among banks that rely more on deposit funding. These findings highlight a hitherto undocumented and unintended regulatory cause that motivates banks to adopt the originate-to-distribute model.

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Deposit competition and mortgage securitization

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