Securitization

Generally, the conversion of non-marketable assets of any kind into tradable securities (the process of converting nontradable assets into tradable securities.). – Banks bundle receivables from loans extended into debt securities that are sold to investors. – Banks issue certificates for foreign shares not listed on the domestic stock exchange, thereby making them tradable on the domestic market and in domestic currency (share certificate). – Securities on receivables or liabilities are issued and exchanged outside the banks. In this way, companies and public authorities satisfy their need for debt capital less by borrowing from banks. – Banks and, in this function, originators transfer receivables from borrowers to a special purpose entity (tue-sale securitization) or pass on the entire risk to the buyers by issuing credit-linked notes (synthetic securitization). Because this results in – risk-selling and risk-acquiring participants even on an international scale and – the banks did not have to hold any equity capital for the outsourced receivables, this form of securitization in particular is the focus of attention of the supervisory authorities. – On the other hand, the involvement of a special purpose vehicle ensures that, in the event of the originator’s insolvency, the assets held by the special purpose vehicle will continue to be available and that payments will be made unchanged so that the holders of the securitized securities will be properly serviced. The credit quality of the securities issued by the SPV is thus not dependent on the liquidity of the originator, which is generally risk mitigating with respect to the securitization securities (the sale of a large pool of receivables by an entity [originator] – that transposes such receivables in the course of its business to a bankruptcy-remote, special purpose entity [SPE] – in a manner that qualifies as a true sale [vs. a secured loan] and – is intended to achieve certain results for accounting purposes, as well as protecting the receivables from the claims of creditors of the originator, and – the issuance of debt securities and sale by the SPE [issuer], in either a private placement or public offering,- that are subsequently satisfied from the proceeds of – and secured by – the receivables; – when the securitization is closed, funds flow from the purchasers of the securities [investors: usually banks, insurance companies and pension funds] to the issuer and – from the issuer to the originator. All of these transactions occur virtually simultaneously). – See Absence Capitalism, Stock Certificate, American Depositary Receipts, Asset-Backed Securities, Asset-Backed
Securities-Collateralised Debt Obligation, Assignats, Off-exchange, Credit enhancement, Buy-and-hold practice, Claw-back clause, Collateralised debt obligations, Credit default swap, Credit default swap squared, Loan sale, loan-for-paper transaction, defeasance, diamond thesis, equity kicker, development process, iterative, first-loss tranche, joint securitization group, loan securitization, loan derivative, loan extension, credit card fiasco, KVV strategy, liquidity facility, Mezzanine tranche, Non-banks, Originate-to-distribute strategy, PayGreen initiative, Reintermediation, Repackaging, Residential mortgage-backed securities, Portfolio insurance, Repatriation option, Setback effect, Senior tranche, Single master liquidity conduit, True sales initiative, Submarine effect, Support, Tacit, Securitization, Traditional, Securitization market, Securitization securitiesSelf-retention, Securitization structure, Packaging art, Interest rate freeze, Special purpose vehicle. – Cf. Deutsche Bundesbank Monthly Report of September 2004, p. 84 ff. (p. 86: table of risk weights for securitizations under Basel-II), ECB Monthly Report of September 2005, p. 20 ff. (there also [linguistically unattractive] explanations and charts on loan securitization), Deutsche Bundesbank Monthly Report of March 2006, p. 38 ff.; p. 56 ff. (with regard to Basel II), Deutsche Bundesbank Monthly Report of December 2006, pp. 82 ff. (mandatory capital backing of securitization exposures, p. 84: overview of determining securitization risk weight), ECB Monthly Report of February 2008, p. 90 (overview of parties involved in a securitization), BaFin Annual Report 2008, p. 55 (retention requirements), BaFin Annual Report 2009, pp. 154 ff. (book value of EUR 213 billion of securitization positions of German banks at year-end 2009; overview by asset class), BaFin Annual Report 2010, p. 124 f. (new regulations in the wake of the Capital Adequacy Directive), BaFin Annual Report 2011, p. 170 ff. (securitization volume declining: p. 171: overview of securitization portfolios by type of collateral, p. 172: by regional distribution of underlyings), BaFin Annual Report 2012, pp. 154 et seq. (overviews, also subdivided by type of collateral), as well as the respective BaFin Annual Report, chapter “Supervision of banks, financial service providers and payment institutions,” ECB Monthly Bulletin of October 2011, p. 79 et seq. (securitizations and issues of debt securities by banks since 2000), ECB Monthly Bulletin of January 2012, p. 73 et seq. (statistical coverage and monetary policy classification of securitizations).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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