Difference between revisions of "Securitization"

From Open Risk Manual
(Redirected page to Securitisation)
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== Definition ==
'''Securitization''' is a financial structure that generates a new security out of an existing collection of credit assets.
Securitization is a risk transfer technique that appeared in the US at the beginning of the 80s. In a securitization, a bank’s exposure to credit risk is transferred into a Special Purpose Vehicle (SPV) that issues securities to a broad array of investors. These securities are typically rated by rating agencies although some asset securitizations are private placements involving non-rated securities. Such techniques are used in many jurisdictions and encompass a wide range of credit exposures including for instance residential mortgages (mortgage-backed securities), corporate loans and credit card receivables. Although initially used to transfer credit risk, securitization techniques are also
used by large banks as an alternative way to raise funding.
== Usage ==
* Investors use securitization to obtain access (invest) in credit assets
* Originators may use securitization as part of their [[Credit Portfolio Management]] tools
== Risks ==
A securitization structure is a fairly elaborate setup that displays a varying risk profile to the different parties involved. For the ''investors'' in securitization bonds (tranches) the list of principal risk factors includes a combination of the following
* credit risk
* prepayment risk
* liquidity risk
To the extend that investors rely on their own or third party analysis and tools for assessing credit risk they may be further subject to [[Model Risk]]
== Issues and Challenges == 
* Incentives of the agents involved in the securitization pipeline
* Availability of data for risk analysis
* Transparency of structure
* Quality of third party risk assessments
== External Links ==
* [http://en.wikipedia.org/wiki/Securitization  Wikipedia]
[[Category:Credit Risk‏‎]]
[[Category:Credit Portfolio Management]]
[[Category:Risk Elements‏‎]]

Latest revision as of 16:33, 11 October 2019

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