Magazine article American Banker

Despite Increased Risks, Smaller Banks Buy More Asset-Backed Securities

Magazine article American Banker

Despite Increased Risks, Smaller Banks Buy More Asset-Backed Securities

Article excerpt

Small and midsize banks are stepping up their investment in asset-backed securities just as the market is becoming more risky, according to people at a conference here.

The market for asset-backed issues is "unbelievably frothy," said Patricia A. Jehle, senior managing director at Bear, Stearns & Co. "Discipline in the market from five or seven years ago has dissipated."

Banks have increased their presence alongside insurance companies and money managers in buying asset-backed issues since December, when the Office of the Comptroller of the Currency eased the rules governing securities investment by banks. Investors said that though it's impossible to quantify banks' purchases of asset-backed securities, there has been a noticeable rise.

"Small and midsize banks are buying more," said Julia Landes, vice president at Harris Investment Management, Chicago,. "It's become a more crowded market."

While investor demand is driving the market to unprecedented heights, some investors at the Strategic Research Institute-sponsored conference raised concerns that the market is becoming overheated.

"There's a buying frenzy," said conference chairman John R. Wilson, managing director at Prudential Structured Finance Group. "This is going to be a problem in the future."

Neil Baron, vice chairman and general counsel at Fitch Investors Service, said investors are more exposed than ever to the performance of issuers.

In the 1980s, he said, mortgage-backed securities still paid off when thrifts failed, partially because of government guarantees. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.