Securitization Reinvented?
In an article titled "Banks reinvent securitisation to cut capital costs" (6 July 2009), the Financial Times mentions that investment banks are inventing schemes to reduce regulatory capital requirements "in the latest sign that financial market innovation is far from dead".
It would seem from the description of the investment banks' schemes that the major innovation was done in the 1990s when balance sheet securitizations first started getting done, rather than anything particularly creative being done at this stage.
Securitization has always been a useful tool to transform and distribute risk, so it's no surprise that banks are using it reduce the risk on their balance sheets (the caveat being that the risk needs to actually be distributed rather than just transformed in order for an institution to reduce its risk and therefore its regulatory capital requirement). In fact, it is one of the first applications of securitization. Which is why one wonders how the oldest structures in the book are being billed as new and innovative.
Anu Munshi
Partner, B&B Structured Finance Ltd.
Instructor was excellent; THE method of “building up” to each topic worked well; ONE OF THE BEST COURSES i HAVE EVER ATTENDED!
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