The rise and fall of the ABS market
AbstractThe financial crisis has raised some concern about the quality of information available on some traded assets on the securities markets to market participants and regulators. Asset-backed securitization in general got partial blame for the paucity of liquidity on bank balance sheets and the consequent credit crunch. After the Asset-Backed Security (ABS) market fell to near inactivity in 2009, the US federal government's Term Asset-Backed Securities Loan Facility (TALF) provided backing and a boost to the issuance of asset-backed securitization. In this market condition, given the nature of ABS, it is difficult for them not to be relatively illiquid, and this has resulted in unacceptable levels of market risk for most investors. Their liquidity before the crisis was driven by a market in continuous expansion, fed by Special Purpose Vehicle (SPV), Conduits, and other low capitalized term-transformation vehicles. Nowadays, the industry is concerned with the ongoing ABS reforms and how these will be implemented. This article reviews the ABS market in the last decade and the possible consequences of the recent regulatory proposals. It proposes a retention policy and the institution of a new financial body to supervise the quality of the security in an ABS pool, its liquidity, and the model risk implied by the issuer's valuation mode
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Bibliographic InfoPaper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2010_28.
Date of creation: Nov 2010
Date of revision:
Asset Backed Security; Government Policy and Regulation;
Other versions of this item:
- G39 - Financial Economics - - Corporate Finance and Governance - - - Other
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-BAN-2010-11-27 (Banking)
- NEP-FMK-2010-11-27 (Financial Markets)
- NEP-REG-2010-11-27 (Regulation)
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