Securitisation

This overview is a guide to the Banking & Finance content within the Securitisation subtopic, with links to appropriate materials.

Securitisation is a term used to cover a range of financing techniques used by a holder of assets to transfer risk from the assets using methods of financial structuring. Typically, a combination of asset or risk transfer, securities issuance, and derivatives is used to achieve this. The Bank of International Settlements identifies three elements of structured finance, which are equally applicable to securitisation:

1. •

   pooling assets owned by the holder

2. •

   tranching (ie division into tiered levels) issued bonds, which are backed (ie secured) by the asset pool, and

3. •

   de-linking (ie removal) the credit risk of the pool of assets from the credit risk of the holder of the assets

There is a large variety of structures that can be used to bring about this result and the method used will be dictated by the type of asset and the type of holder.

The most significant holders of assets will typically be banks—commercial banks use their capital to extend loans to various borrowers and these loans are