What is a securitization structure?
Securitizations are often structured as a sequential pay bond, paid off in a sequential manner based on maturity. This means that the first tranche, which may have a one-year average life, will receive all principal payments until it is retired; then the second tranche begins to receive principal, and so forth.
What are structured retail products?
Definition of a structured product. Structured products are investments which provide a return based on the performance of an asset. This asset can cover the equity, index, fund, interest rate, currency, commodity or property markets. The payoff and level of capital at risk can be pre-defined.
What are Securitised products?
Securitized products broadly refer to pools of financial assets that are brought together to create a new security, which is then divided and sold to investors. Since the value and cash flows of the new asset are based on its underlying securities, these investments can be hard to analyze, but they have their benefits.
Why do banks use securitisation?
Securitisation enables banks to effectively lend a higher percentage of their deposits. This was fine when market conditions were good.
Why do companies do securitization?
By buying into the security, investors effectively take the position of the lender. Securitization allows the original lender or creditor to remove the associated assets from its balance sheets. With less liability on their balance sheets, they can underwrite additional loans.
What are structured credit products?
Structured credit products are created through a securitization process, in which financial assets such as loans and mortgages are pack- aged into interest-bearing securities backed by those assets, and issued to investors. This, in effect, re-allocates the risks and return potential involved in the underlying debt.
What is securitization?
The Matter of Securitization Securitization is the core of structured finance. It is the method by which those in structured finance create asset pools and ultimately form complex financial instruments that are useful to corporations and investors with special needs.
How do securitized products work?
How Securitized Products Work. Securitization describes the process of pooling financial assets and turning them into tradable securities. The first products to be securitized were home mortgages. These were followed by commercial mortgages, credit card receivables, auto loans, and student loans, among others.
What are index-based securitization structures?
securitization structure of performing and non-performing exposure (loans). Such index-based securitization structures can provide additional return to investors when economic/industry conditions improve (for a detailed explanation, please see the “Securitization of non-performing loans” section below).
What are securitized fixed-income products?
Securitized products represent a complicated sector of the fixed-income market. These products are pools of financial assets that are brought together to make a new security, which is then divided and sold to investors.