Securitization: Difference between revisions

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{{infobox4
|list1=
<ul>
<li>[[Classification of financial markets]]</li>
<li>[[Acquisition Financing]]</li>
<li>[[Source of financing]]</li>
<li>[[Equity instrument]]</li>
<li>[[Banking book]]</li>
<li>[[Creation of money]]</li>
<li>[[Contingent consideration]]</li>
<li>[[Private equity investments]]</li>
<li>[[Direct paper]]</li>
</ul>
}}
'''Securitization of assets''' is a [[process]] through which an issuer creates a [[financial instrument]] by transforming an illiquid asset such as receivables into securities, in order to sell it to investors. Those instruments are secured by future cash flows connected with asset.
'''Securitization of assets''' is a [[process]] through which an issuer creates a [[financial instrument]] by transforming an illiquid asset such as receivables into securities, in order to sell it to investors. Those instruments are secured by future cash flows connected with asset.
The purpose of this transaction can be shortening of collection period at one hand and on the other transferring [[risk]] of insolvency.
The purpose of this transaction can be shortening of collection period at one hand and on the other transferring [[risk]] of insolvency.
Securitization is a common form of financing an operational business especially among banks.  
Securitization is a common form of [[financing]] an operational business especially among banks.  


== Structure of the process ==
==Structure of the process==
The assets that are typically securitized include mortgages, auto loans, credit card receivables, and other types of [[consumer]] and commercial debt.
The assets that are typically securitized include mortgages, auto loans, credit card receivables, and other types of [[consumer]] and commercial debt.


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* The SPV issues securities, such as [[bonds]] or notes, which are backed by the pool of assets. The securities are then sold to investors.
* The SPV issues securities, such as [[bonds]] or notes, which are backed by the pool of assets. The securities are then sold to investors.
* The proceeds from the sale of the securities are used to pay off the original loans or mortgages, and the issuer is no longer responsible for the underlying assets.
* The proceeds from the sale of the securities are used to pay off the original loans or mortgages, and the issuer is no longer responsible for the underlying assets.
* The investors in the securities receive cash flows from the underlying assets, such as interest payments and principal repayments.
* The investors in the securities receive cash flows from the underlying assets, such as [[interest]] payments and principal repayments.


Securitization allows the issuer to free up capital and reduce risk by transferring the assets to the SPV. It also provides investors with access to a diversified pool of assets that they might not otherwise have the opportunity to invest in.
Securitization allows the issuer to free up capital and reduce risk by transferring the assets to the SPV. It also provides investors with access to a diversified pool of assets that they might not otherwise have the opportunity to invest in.
{{infobox5|list1={{i5link|a=[[Acquisition Financing]]}} &mdash; {{i5link|a=[[Financial instrument]]}} &mdash; {{i5link|a=[[Long-term debt]]}} &mdash; {{i5link|a=[[Depository bond]]}} &mdash; {{i5link|a=[[Direct paper]]}} &mdash; {{i5link|a=[[Cash and cash equivalents]]}} &mdash; {{i5link|a=[[Sukuk]]}} &mdash; {{i5link|a=[[Interim financing]]}} &mdash; {{i5link|a=[[Asset stripping]]}} }}


==References==
==References==

Latest revision as of 04:17, 18 November 2023

Securitization of assets is a process through which an issuer creates a financial instrument by transforming an illiquid asset such as receivables into securities, in order to sell it to investors. Those instruments are secured by future cash flows connected with asset. The purpose of this transaction can be shortening of collection period at one hand and on the other transferring risk of insolvency. Securitization is a common form of financing an operational business especially among banks.

Structure of the process

The assets that are typically securitized include mortgages, auto loans, credit card receivables, and other types of consumer and commercial debt.

The process of securitization involves several steps:

  • The issuer (e.g., a bank or financial institution) gathers a pool of assets, such as mortgages or loans, and transfers them to a special purpose vehicle (SPV).
  • The SPV issues securities, such as bonds or notes, which are backed by the pool of assets. The securities are then sold to investors.
  • The proceeds from the sale of the securities are used to pay off the original loans or mortgages, and the issuer is no longer responsible for the underlying assets.
  • The investors in the securities receive cash flows from the underlying assets, such as interest payments and principal repayments.

Securitization allows the issuer to free up capital and reduce risk by transferring the assets to the SPV. It also provides investors with access to a diversified pool of assets that they might not otherwise have the opportunity to invest in.


Securitization — recommended articles
Acquisition Financing — Financial instrument — Long-term debt — Depository bond — Direct paper — Cash and cash equivalents — Sukuk — Interim financing — Asset stripping

References

Author: Krzysztof Nadzieja

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