We investigate the link between securitization and asset prices and show that increases in the growth rate of the volume of ABS issuance lead to a sizable decline in bond and\ud equity premia. Furthermore, we show that in a model where banks select their portfolio of assets and create synthetic securities, the compensation for undertaking risk decreases as securitization increases. The pooling and tranching of credit assets relaxes both the funding and the risk constraints banks face allowing them to increase balance sheet holdings. Accordingly, the drop in risk premium may be unrelated to a decline in actual risk.