Securitisation: A Public Policy Tool?

This paper is a primer for policy analysts on the securitisation of assets and liabilities. It describes key elements of a typical asset securitisation; outlines the reasons for securitising assets; discusses the types of assets that can be securitised; describes the requirements for a successful asset securitisation; examines whether New Zealand's financial infrastructure presents any barriers to securitisation; discusses the issues surrounding the securitisation of liabilities; and analyses the potential public policy uses of securitisation. The paper does not aim to review sovereign securitisations that have occurred to date. The potential public policy benefits include more efficient financing, improved balance sheet structure, better risk management and improved fiscal credibility. However, the Crown's low borrowing costs and diversity of financial exposures limits the extent to which benefits are achievable and measurable. There is scope for securitisation to enhance fiscal credibility, particularly in the area of superannuation where policy credibility is a key determinant of a successful policy outcome. An appendix to the paper examines the costs and benefits of securitising the Crown's student loans portfolio. It concludes that further work could be done to quantify the costs and benefits but notes that the benefits would have to be significant in light of the additional costs associated with securitisation.