95

We analyze the effect of loan securitization in a model where banks compete for borrowers over two periods. Our main result is that the adoption of the so-called “originate to distribute” model may adversely affect the efficiency of the credit market (through banks’ reduced screening incentives) while leading to an increase in banks’ overall profits. This effect is driven by competition in the primary credit market, and not by banks’ attempts to exploit informational asymmetries in the secondary market for loans. Classification JEL: G21; L12; L13