SECURITIZATION

Securitization

Securitization

The development of securitization techniques

Securitization is a financing technique, developed by the financial engineering. It is the transformation of assets in securities that are then sold to investors. Securitization is intended in particular to transform credits, usually medium to long term, market products, and the market to provide liquidity to this product. These techniques were first developed in the United States, for the "Securitization" of real estate debt in the 1960s. Securitization was first allowed the refinancing of mortgage loans (Bernanke & Blinder, 1988, pp.437).

Securitization is one of the techniques of asset-liability management techniques in the category of asset management. Its purpose and effect of transferring risk from the holder of the debt capital markets. It is no longer just a movement of debts, but a release of claims. Markets need to liquidate the assets securitized. The credit risks, which were reserved for banks before deregulation can then be transferred to investors who choose to be exposed to this risk.

In the second half, of the 70 had developed the euphoria of petrodollars and financial experts considered that there was a problem of excess liquidity. Lending policy has been particularly open, and the result was, in fact, a debt overhang of developing countries. Defaults recorded raised the issue of accounting for receivables in the balance sheets of U.S. banks. It was then that have developed techniques for the transfer of assets and improvement of these assets through securitization in particular.

In addition to the United States from the 1970s, securitization has grown to revive the financing of residential real estate. The first players were the federal agency "Governmental National Mortgage Association" or "Ginnie Mae", the Federal National Mortgage Association (FNMA) or "Fannie Mae "and" Home Loan "or" Freddie Mac ". These federal agencies (government sponsored Agencies) were responsible for the purchase of mortgages from institutions that granted mortgage loans. Securitization also developed in England and France where it was introduced into the legislation by the Act of December 23, 1988 in the form of mutual funds (SPV).

Securitization has developed on the basis of trust in the risk assessment made by the rating agencies that gave very strong notes to songs from assemblies, in particular on the basis of the notes they gave to monolines.

The securitization market

Securitization is the vector of marketization of credit that is supposed to improve the financial system efficiency by the spread of risk. The development of securitization has been particularly rapid. The outstanding MBS / CMO and ABS bonds reached $ 10,000 billion in the United States in late 2007. This is a tripling in ten years. The securitization market accounts for 40 of the bond market while the bonds issued by companies representing $ 5,800 billion and the U.S. Treasury $ 4,500 billion. In Europe, ABS issuance reached € 100 billion against € 238 billion in the United States over the same period. A significant proportion of buyers of securitization was created by hedge funds in search of high returns, and investment banks.

The nature of the securitization

Securitization is the creation within the financial engineering and asset and liability management. Its purpose is to leave the stock of financial assets with ...