Global Financial Crises and the Future of Securitization
GLOBAL FINANCIAL CRISES AND THE FUTURE OF SECURITIZATION
Contents
1. Introduction……………………………………………………………………...3
2. Overview………………………………………………………………………...3
3. Structured-finance securitization ………………………………………………..5
4. Key segments of the securitization market………………………………………6
5. Rating Agencies Deficiencies....................………………………………………8
6. Future of Structured-finance securitization……………………………..……...10
7. Conclusion................................................…………………………………...…11
8. References………………………………………………………………….......12
LIST OF FIGURES
Figure 1. Securitization markets: key participants…………………………………4
Figure 2. European securitization issuance 2002-2010…………………………….7
Figure 3. American securitization issuance 2002-2010…………………...………..7
1. Introduction
This case describes and analyzes how securitization and structured products work and the value they add to finance, and how structured products are constructed, their value and how they are used in finance.
The 2007 – 2009 financial crisis was a key catalyst for the global liquidity crisis that mutated into a full-blown credit crisis, bringing the international financial system to the edge of the abyss. In hindsight, the numerous structural shortcomings of the structured- finance securitisation market - particularly in the US - may have seemed obvious. The misalignment of incentives was evident in every link along the structured-finance securitization chain. Proper risk evaluation was not always undertaken by professional investors and intermediaries, while too much faith was put in credit rating agencies whose own methodologies for valuing complex structured finance products were at times flawed. In addition, other gatekeepers of the public trust including auditors, securities lawyers, regulators and supervisors failed, to varying degrees.
2. Overview
In general, securitized instruments can be defined through three distinct characteristics[1]: 1) pooling of assets
Contents
1. Introduction……………………………………………………………………...3
2. Overview………………………………………………………………………...3
3. Structured-finance securitization ………………………………………………..5
4. Key segments of the securitization market………………………………………6
5. Rating Agencies Deficiencies....................………………………………………8
6. Future of Structured-finance securitization……………………………..……...10
7. Conclusion................................................…………………………………...…11
8. References………………………………………………………………….......12
LIST OF FIGURES
Figure 1. Securitization markets: key participants…………………………………4
Figure 2. European securitization issuance 2002-2010…………………………….7
Figure 3. American securitization issuance 2002-2010…………………...………..7
1. Introduction
This case describes and analyzes how securitization and structured products work and the value they add to finance, and how structured products are constructed, their value and how they are used in finance.
The 2007 – 2009 financial crisis was a key catalyst for the global liquidity crisis that mutated into a full-blown credit crisis, bringing the international financial system to the edge of the abyss. In hindsight, the numerous structural shortcomings of the structured- finance securitisation market - particularly in the US - may have seemed obvious. The misalignment of incentives was evident in every link along the structured-finance securitization chain. Proper risk evaluation was not always undertaken by professional investors and intermediaries, while too much faith was put in credit rating agencies whose own methodologies for valuing complex structured finance products were at times flawed. In addition, other gatekeepers of the public trust including auditors, securities lawyers, regulators and supervisors failed, to varying degrees.
2. Overview
In general, securitized instruments can be defined through three distinct characteristics[1]: 1) pooling of assets
References: 2. Yener Altunbas, 2009. Securitization and the Bank Lending Channel, European Economic Review vol. 53, no. 8, pp. 996-1009. [2] Altunbas, Y., 2009. Securitization and the Bank Lending Channel, European Economic Review vol. 53, no. 8, pp. 996-1009.