Diamond and Rajan (2009) argue that securitisation also plays an important role in the transmission of interest rate shocks to the housing market. Securitisation allows banks to share risks by moving them off their balance sheets. This leads to an increase in banks' risk appetite and strengthens the `risk-taking channel' described above. To the extent that banks become more lenient in their lending standards, the ' nancial accelerator' effect may be strengthened as well. By amplifying these transmission channels, securitisation may play a role in propagating the effects of interest rate reductions on housing activity. 3 Diamond and Rajan also highlight that securitisation facilitates foreign investment in mortgage loans. Without.
