In this paper we analyze whether the use of credit risk transfer instruments
a®ects the risk taking by large, international banks. Relying on a unique data set
of European collateralized debt obligations (CDOs), we ¯nd that the issue of CDOs
tends to raise the systematic risk (equity beta) of the issuing bank. We also perform
a cross-sectional analysis to identify determinants of the change in systematic risk,
and ¯nd that equity beta rises signi¯cantly more if the issuing bank is ¯nancially
weak (low pro¯tability and high leverage), and if it is domiciled in a bank-based
¯nancial system. Overall, our ¯ndings suggest that credit securitization goes hand
in hand with an increase in the risk appetite of the issuing bank. Our ¯ndings
are also relevant for understanding the ¯nancial stability implications of credit
securitizations.