The economics of securitization: evidence from the European markets

Abstract

This paper surveys the literature examining securitization. Besides describing the economic motivation for the use of securitization, the paper provides details on securitization characteristics and players, presents the recent trends of securitization markets, describes the role played by securitization in the 2007-2008 financial crisis, and compares the financial characteristics of securitization transactions for a large cross-section of ABS, MBS and CDO tranches issued during the 2000-2011 period. Securitization creates value by increasing liquidity, reducing the cost of funding, allowing originators to diversify funding sources, improving originators' risk management, and allowing originators to benefit from regulatory arbitrage and to improve key financial ratios. However, securitization transactions are complex undertakings, they are expensive to set up, and increase the deadweight transaction costs associated with principalagent and asymmetric information problems when used inappropriately.

Market Perception of Bank Risk and Securitization in Spain

“…These resources were, in the main, obtained through securitization. The most commonly mentioned problems of securitization are its complexity, off-balance sheet treatment, asymmetric information problems, agency problems and relatively high transaction costs (Pinto 2014).…”

Are covered bonds different from securitization bonds? A comparative analysis of credit spreads

“…(2010), Casu et al (2013) and Pinto and Alves (2016)] and CB [Packer et al (2007), Surti (2010), Beirne 7 Ring-fencing here means that in a standard (legislative) CB transaction the cover-pool assets are segregated in order to protect them from claims of the issuer's bankruptcy. In structured transactions, ring-fencing means, as for securitization, that the cover-pool assets are sold to a bankruptcy-remote SPV.…”

“…For further details see, e.g.,Roever and Fabozzi (2003),Jobst (2007),Gorton and Metrick (2013),Pinto and Alves (2016) and references therein.…”

The impact of legal advisor‐issuer cooperation on securitization pricing

“…Hence, legal opinions provided by legal advisors are crucial as they assure the transaction as a legal sale, that the assets are sold to a separate entity (i.e. SPV), and this entity is the legal owner of the assets (Hughes, 2017;Pinto & Alves, 2016).…”