| Summary: | This thesis systematically analyses the introduction of Mortgage Backed Securitisation (MBS) in China from the perspective of Douglass North's institutional change theory. Based on a holistic and critical review of his work, this thesis establishes a systematic normative framework of Northian institutional change theory. This consists of the fundamental assumption of procedural rationality, the core concept of the institution, and three theoretical blocks which explain the source, path dependence and adaptive efficiency of institutional change. From this, a set of specific research protocols is devised to operationalise North's institutional change theory for the study of MBS in China. The empirical work is divided between macro and micro levels. At the macro level, the introduction of MBS in China is deciphered from a national and system-wide viewpoint, utilising archival analysis with supplementary survey research. Three main findings emerge. First, the introduction of MBS in China was driven by a mixture of external and internal factors. The external factors included the emergence of private residential property markets, the associated rapid expansion of the mortgage market, and the technological innovations in major domestic residential property finance markets. The main internal factors concerned the attitudes of Chinese financial and property authorities toward further reforms in the Chinese banking and property sectors. Second, the creation of the institutional infrastructure for MBS in China was narrowed by an existing set of institutional constraints that were shaped in the past. These affected the choice of special purpose vehicle for securitisation, the ways of securing housing as reliable collateral for loans, the scope for implementing credit enhancement and the methods for transacting MBSs. This path dependence has three dimensions: the historical sequence of events, the stake of interests groups and their power, and the mental constructs of policy makers and market actors. Third, the different levels of the existing institutional matrix exhibited differing degrees of response to the creation of the institutional infrastructure for MBSs. This reveals the contingent nature of adaptive efficiency and certain frictions in the change process. At the micro level, the investigation focuses on the Construction Bank of China (CBC) in launching its Jianyuan 2005-1 MBSs. Case study research shows how the establishment of a new institutional infrastructure created legal and regulatory opportunities for Chinese banks to construct MBSs. CBC utilised those institutional opportunities to introduce the first MBS in China. The pioneering CBC can be expected to have an enduring influence on the banks coming after them in terms of the transaction structure, credit quality of mortgage pool, method of credit enhancement, information disclosure mechanism and approach of MBSs pricing. An epilogue to this thesis briefly considers the crisis originating in US sub-prime MBSs, which emerged during the final stages of this research. Reviewing those events from Northian institutional perspective suggests that a series of formal and informal institutional arrangements for originating, rating and trading sub-prime MBSs (and their derivatives) has caused the systematic collapse in the value of traded securities. The institutional arrangements were induced by a mixture of the increasing pressure of competition in mortgage lending market, the continuous expansion of the MBSs (and their derivatives) investment market, and the internal subjective mental constructs of the mortgage lenders, institutional investors, finance authorities and home buyers. Retracing history, a number of institutions formulated in the past intertemporally contributed to the introductions of the institutional arrangements. Looking at the Chinese MBS practice, it protects from similar institutional problems by focus on prime mortgage-backed securitisation. Nonetheless, China needs to learn from lessons of the sub-prime crisis by further tightening rules governing future MBSs.
|
|---|
