7  See Levine (2005) for a brilliant summary of the literature. 8  See Merton (1992). 4  BIS Review 63/2010  The prevalence of this model led to significant growth in the market for structured finance in the United States and, to a lesser extent, in Europe.
For instance, the volume of residential mortgage-backed securities issued in the United States was around EUR 200 billion in 2006. 9 Ten years before, this kind of security hardly existed. Sub-prime lending, which was the outgrowth of securitisation, is not bad per se. It extends credit to people who, for various reasons would otherwise be denied credit.