Why should I choose AnalystNotes?

AnalystNotes specializes in helping candidates pass. Period.

Find out more
Subject 1. The Benefits of Securitization PDF Download

Securitization repackages relatively simple debt obligations, such as bank loans and consumer loans, into more complex structures. It then uses the cash flows from the pool of debt obligations to pay off the bond created in the process.

Securitization has several benefits:

  • It benefits investors by re-distributing payment risks, enhancing the predictability of payments, diminishing the impact of unexpected changes in payment patterns (such as defaults, prepayments, or payment extensions), helping investors match risk, return and maturity needs, and reducing risk through various credit enhancements.

  • It enables issuers to operate more efficiently on a risk-adjusted basis by removing assets and leading risks from their balance sheets (thereby reducing their leverage), expanding their capacity to originate loans and to secure lower funding costs.

  • It enhances financial market efficiency, improving overall liquidity in the financial system and reducing liquidity risk. Banks can remove assets from their balance sheets, therefore increasing the pool of available capital that can be loaned out. Borrowers can pay lower costs when borrowing.

The end result is lower cost and risk, more liquidity, and improved economic efficiency.

There are risks associated with securitization, such as risks related primarily to the timing of the ABS's cash flows, and risks related to the inherent credit risk of the loans and receivables.

User Contributed Comments 0

You need to log in first to add your comment.
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

My Own Flashcard

No flashcard found. Add a private flashcard for the subject.

Add

Actions