# Defeasance (so also said in German; more rarely loan security deposit)

- Canonical URL: https://www.gerhardmerk.de/defeasance-so-also-said-in-german-more-rarely-loan-security-deposit
- Post ID: 590789
- Modified: 2023-07-25T21:02:00+00:00
- Language: en

## Definition

Generally, a financing technique in which - an amount of cash or of - first-class - paper is deposited, - from which the creditor can withdraw the interest from the loan granted (the borrower deposits a portfolio of assets to a creditor. The portfolio of assets is designed to meet interest payments and repay the principal of the debt. By this, the assets are risk-free assets or low risk). - Corresponding contracts can also be concluded between a bank and a special purpose entity set up by it. - In the course of the subprime crisis, this form of financing fell into disrepute. This is because many of the securities deposited, which had been classified as first-class by rating agencies, suddenly turned out to be worthless. But even the loans granted could not now be reclaimed because the borrowers - mainly special purpose vehicles and funds - had spent the money to buy securities that likewise sank to zero value: the money had in fact largely flowed into luxury consumption on the way to decapitalization. - See credit enhancement, loan-versus-paper business, Diamond thesis, first-loss tranche, credit derivative, originate-to-distribute strategy, originator, pool, reintermediation, repackaging, rebound effect, true-sale securitization, submarine effect, securitization, securitization, traditional. Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

## Machine-readable

- Generator: Merk Knowledge 1.1.1