Evidence Against "Too Big To Fail" Incentive As Cause Of Bank Over Investment In Securitizations

From "Why Did U.S. Banks Invest in Highly-Rated Securitization Tranches?" by Isil Erel, Taylor D. Nadauld and René M. Stulz, NBER Working Paper No. 17269, Issued in August 2011:

This evidence is inconsistent with explanations for holdings of highly-rated tranches that emphasize the incentives of banks deemed “too-big-to-fail”. Further, the evidence does not provide support for “bad incentives” theories of holdings of highly-rated tranches. We find, however, that banks active in securitization held more highly-rated tranches. Such a result can be consistent with regulatory arbitrage as well as with securitizing banks holding highly-rated tranches to convince investors of the quality of these securities. Our evidence supports the latter hypothesis.