True sale securitization and packaged sale of receivables (true sale securitization)

Receivables of one or more banks are – combined into a single package (portfolio; special assets, portfolio), – purchased by a special purpose entity – together with the risk and – after division into tranches with different risk content and usually: senior, mezzanine and junior tranche – sold to investors on the capital market. – The buyers of the securities bear any losses that may occur after acquisition in return for a risk premium. – By selling existing loans, banks obtain liquid funds, reduce their equity burden and create scope for granting new loans. In principle, small and medium-sized enterprises also benefit from this. – The difference between true sale securitization and synthetic securitization is that in the latter the loan remains with the bank; only the credit risk is sold to the special purpose entity. True sale securitization, on the other hand, always involves the complete, final irrevocable transfer of the income and risks to a third party. Corresponding items now also no longer appear on the seller’s balance sheet. This is why true sale securitization is also referred to as an off-balance sheet technique. This makes it difficult for statistics to measure the total volume of credit (by means of true-sale securitization, it is possible for credit to be taken off the balance sheet and thus disappear from official statistics based on bank balance sheets). – See assets, illiquid, asset-backed securities, loan-for-paper, equity kicker, first-loss tranche, financial alchemy, credit derivative, credit event, central bank eligibility, originate-to-distribute strategy, pool, reintermediation, repatriation option, single master liquidity conduit, subprime crisis, transfer, ultimate, submarine effect, securitization, securitization, synthetic, securitization, traditional, securitization structure. – Cf. Deutsche Bundesbank Monthly Report of April 2004, p. 27 et seq., ECB Monthly Report of March 2008, p. 26 et seq. (accounting issues), ECB Monthly Report of September 2008, p. 28 et seq. (impact of true sale securitization on banks’ loan growth; overviews), ECB Monthly Report of November 2010, p. 83 (note 28: true sale securitization makes it difficult to statistically measure total loan volume).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
E-mail address: info@ekrah.com
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