The Economics of Securitization: Evidence from the European Markets
Securitization is the process whereby financial assets are pooled together, with their cash flows, and sold to a specially created third party that has borrowed money to finance the purchase. The borrowed funds are raised through the sale of securities, in the form of debt instruments, into the market. Securitization is thus a technique used to transform illiquid assets into securities. Securitization creates value by increasing liquidity and funding, reducing the cost of funding, allowing originators to reach a funding sources diversification, improving originators’ risk management, increasing the segmentation between the origination and investment functions, and allowing originators to benefit from regulatory (and/or tax) arbitrage and to improve key financial ratios. Although the economic advantages, securitization also has problems, especially when used inappropriately. Considering the important role played by securitization in the development and propagation of the 2007/2008 financial crisis, the most commonly referred problems of securitization are complexity, off-balance sheet treatment, asymmetric information problems, agency problems, and higher transaction costs. Besides describing the economic motivations and problems of securitization, this paper provides details on asset securitization characteristics and players, presents the recent trends of securitization markets, describes the role played by securitization in the 2007/2008 financial crisis, and provides some statistics of asset securitization activity in Western Europe between 2000 and 2013.
|Date of creation:||Apr 2014|
|Date of revision:|
|Contact details of provider:|| Postal: Rua Diogo Botelho, 1327; 4169 - 005 Porto|
Phone: +351 226 196 200
Fax: +351 226 196 291
Web page: http://www.catolicabs.porto.ucp.pt/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andreas A. Jobst, 2002.
"Collateralized Loan Obligations (CLOs) – A Primer,"
Working Paper Series: Finance and Accounting
96, Department of Finance, Goethe University Frankfurt am Main.
- Altunbas, Yener & Gambacorta, Leonardo & Marques-Ibanez, David, 2009.
"Securitisation and the bank lending channel,"
European Economic Review,
Elsevier, vol. 53(8), pages 996-1009, November.
- Altunbas, Yener & Gambacorta, Leonardo & Marqués-Ibáñez, David, 2007. "Securitisation and the bank lending channel," Working Paper Series 0838, European Central Bank.
- Yener Altunbas & Leonardo Gambacorta & David Marquï¿½s, 2007. "Securitisation and the bank lending channel," Temi di discussione (Economic working papers) 653, Bank of Italy, Economic Research and International Relations Area.
- Yener Altunbas & Leonardo Gambacorta & David Marques, 2008. "Securitization and the bank lending channel," Proceedings 1101, Federal Reserve Bank of Chicago.
- Edward M. Iacobucci & Ralph A. Winter, 2005. "Asset Securitization and Asymmetric Information," The Journal of Legal Studies, University of Chicago Press, vol. 34(1), pages 161-206, 01.
- Allen N. Berger & Richard J. Herring & Giorgio P. Szegö, 1995.
"The Role of Capital in Financial Institutions,"
Center for Financial Institutions Working Papers
95-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Peter M. DeMarzo, 2005. "The Pooling and Tranching of Securities: A Model of Informed Intermediation," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 1-35.
- Charles Calomiris & Joseph Mason, 2004.
"Credit Card Securitization and Regulatory Arbitrage,"
Journal of Financial Services Research,
Springer;Western Finance Association, vol. 26(1), pages 5-27, August.
- Charles W. Calomiris & Joseph R. Mason, 2003. "Credit card securitization and regulatory arbitrage," Working Papers 03-7, Federal Reserve Bank of Philadelphia.
- George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, Oxford University Press, vol. 84(3), pages 488-500.
- Paul S. Mills & John Kiff, 2007. "Money for Nothing and Checks for Free; Recent Developments in U.S. Subprime Mortgage Markets," IMF Working Papers 07/188, International Monetary Fund.
- Nicola Gennaioli & Andrei Shleifer & Robert Vishny, 2010.
"Financial Innovation and Financial Fragility,"
in: Market Institutions and Financial Market Risk
National Bureau of Economic Research, Inc.
- Gary Gorton, 2009.
"The Subprime Panic,"
European Financial Management,
European Financial Management Association, vol. 15(1), pages 10-46.
- Cardone-Riportella, Clara & Samaniego-Medina, Reyes & Trujillo-Ponce, Antonio, 2010. "What drives bank securitisation? The Spanish experience," Journal of Banking & Finance, Elsevier, vol. 34(11), pages 2639-2651, November.
- Ingo Fender & Janet Mitchell, 2005.
"Structured finance : complexity, risk and the use of ratings,"
Financial Stability Review,
National Bank of Belgium, vol. 3(1), pages 127-135, June.
- Ingo Fender & Janet Mitchell, 2005. "Structured finance: complexity, risk and the use of ratings," BIS Quarterly Review, Bank for International Settlements, June.
- Nikolay Nenovsky & S. Statev, 2006. "Introduction," Post-Print halshs-00260898, HAL.
- Jones, David, 2000. "Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues," Journal of Banking & Finance, Elsevier, vol. 24(1-2), pages 35-58, January.
- M. Ruth & K. Donaghy & P. Kirshen, 2006. "Introduction," Chapters, in: Regional Climate Change and Variability, chapter 1 Edward Elgar Publishing.
- Rutledge, Ann & Raines, Sylvain, 2010. "The Elements of Structured Finance," OUP Catalogue, Oxford University Press, number 9780195179989, December.
- Yuliya Demyanyk & Otto Van Hemert, 2008.
"Understanding the subprime mortgage crisis,"
1092, Federal Reserve Bank of Chicago.
- Yuliya Demyanyk & Otto Van Hemert, 2011. "Understanding the Subprime Mortgage Crisis," Review of Financial Studies, Society for Financial Studies, vol. 24(6), pages 1848-1880.
- Yuliya Demyanyk & Otto Van Hemert, 2009. "Understanding the subprime mortgage crisis," Proceedings, Federal Reserve Bank of San Francisco, issue Jan.
- Benmelech, Efraim & Dlugosz, Jennifer, 2009.
"The alchemy of CDO credit ratings,"
Journal of Monetary Economics,
Elsevier, vol. 56(5), pages 617-634, July.
- Markus K. Brunnermeier, 2009. "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 77-100, Winter.
- Chris Downing & Dwight Jaffee, 2009. "Is the Market for Mortgage-Backed Securities a Market for Lemons?," Review of Financial Studies, Society for Financial Studies, vol. 22(7), pages 2257-2294, July.
- Sarai Criado & Adrian van Rixtel, 2008. "Structured finance and the financial turmoil of 2007-2008: and introductory overview," Occasional Papers 0808, Banco de España;Occasional Papers Homepage.
- Jagtiani, Julapa & Saunders, Anthony & Udell, Gregory, 1995. "The effect of bank capital requirements on bank off-balance sheet financial innovations," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 647-658, June.
- Brent Ambrose & Michael LaCour-Little & Anthony Sanders, 2005. "Does Regulatory Capital Arbitrage, Reputation, or Asymmetric Information Drive Securitization?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 28(1), pages 113-133, October.
When requesting a correction, please mention this item's handle: RePEc:cap:wpaper:022014. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ricardo Goncalves)
If references are entirely missing, you can add them using this form.