Financial intermediation theory and implications for the sources of value in structured finance markets
AbstractStructured finance instruments represent a form of securitization technology which can be defined by the characteristics of pooling of financial assets, delinking of the credit risk of the asset pool from the credit risk of the originating intermediary, and issuance of tranched liabilities backed by the asset pool. Tranching effectively accomplishes a "slicing" of the loss distribution of the underlying asset pool. This paper reviews the finance literature relating to security design and securitization, in order to identify the economic forces underlying the creation of SF instruments. A question addressed is under what circumstances one would expect to observe pooling alone (as with traditional securitization) versus pooling and tranching combined (as with structured finance). It is argued that asymmetric information problems between an originator and investors can lead to pooling of assets and tranching of associated liabilities, as opposed to pooling alone. The more acute the problem of adverse selection, the more likely is value to be created through issuance of tranched assetbacked securities. Structured finance instruments also help to complete incomplete financial markets, and they may also appear in response to market segmentation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bank of Belgium in its series Working Paper Document with number 71.
Length: 26 pages
Date of creation: Jul 2005
Date of revision:
Contact details of provider:
Postal: Boulevard de Berlaimont 14, B-1000 Bruxelles
Phone: (+ 32) (0) 2 221 25 34
Fax: (+ 32) (0) 2 221 31 62
Web page: http://www.nbb.be/
More information through EDIRC
Structured finance; securitization;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G20 - Financial Economics - - Financial Institutions and Services - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-08-03 (All new papers)
- NEP-BEC-2005-08-03 (Business Economics)
- NEP-CFN-2005-08-03 (Corporate Finance)
- NEP-FIN-2005-08-03 (Finance)
- NEP-FMK-2005-08-03 (Financial Markets)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Gann, Philipp, 2009. "Liquidität, Risikoeinstellung des Kapitalmarktes und Konjunkturerwartung als Preisdeterminanten von Collateralized Debt Obligations (CDOs) - Eine simulationsgestützte Analyse," Discussion Papers in Business Administration, University of Munich, Munich School of Management 10582, University of Munich, Munich School of Management.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.