Economies can become more risky if policy-makers allow loans to be securitised, a working paper published by the Bank of Italy argues.

In Demand for safety, risky loans: a model of securitisation, Anatoli Segura and Alonso Villacorta present a new competitive equilibrium model based on some investors’ demand for safe assets. “Securitisation allows to create safe assets by pooling idiosyncratic risks from loan originators, leading to higher aggregate loan issuance,” the authors say.

But they