Deposit market power, funding stability, and mortgage securitization

This paper quantifies the effect of deposit concentration on loan mortgage premiums for securitized mortgages and their subsequent servicing. Banks whose deposit concentration is one standard deviation above average sell loans with rates that are lower by 12.38 basis points. In the period preceding the Great Recession, this effect was almost three times greater; during the crisis the effect proved negligible; and the sample average has remained consistent following the crisis. Securitized loans have sources of risk that are mitigated by funding stability. Tests indicate that banks with a high deposit concentration may service mortgages for longer periods of time.