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Asset Securitisation and Banking Sector - Coursework Example

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The author of the "Asset Securitisation and Banking Sector" paper explains what he/she understands by the term asset "Securitisation" as it applies to the banking sector and to what extent this development has undermined the viability of the US banking business model…
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Asset Securitisation and Banking Sector
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Download file to see previous pages The history of asset securitisation dates back to 1970s, when the structured financing of mortgage pools was being done. Before entering into asset securitisation, the banks were the portfolio leaders and they used to hold loans until their maturity periods. The loans held by the banks were mainly funded by the deposits of the customers and they were the obligations of the banks. It is important to note that these obligations were not the claim on specific assets. With the development of the housing credit market after the World War II, the financial institutions especially the depository institutions were facing increase demand of housing credit. The increasing housing credit was establishing an opportunity for the banks to increase the sources of mortgage funding. For attracting the investors, the investment vehicle was developed by the investment bankers. This investment vehicle segregated the defined mortgage pools and segmented the credit risk. Finally, the cash flows from the underlying loans were structured by the investment bankers. The mortgage securitisation structures took several years to become efficient structures. Later on, it was realized by the loan originators that this process could be used for the other types of loans. During mid 1980s, asset securitisation became one of the popular growing activities in the capital markets. The sophisticated investors and the advancement in technology contributed to the growing process of asset securitisation. Today, very few banks claim that they are exclusive portfolio lenders. The figure shows that the relative investments in asset-backed securities are the highest as compared to the other securities; however, a great decline in 2008 is noticeable (Figure 1).

The process of asset securitisation is offering various benefits to parties involved. From the originators point of view, it increases the returns on capital by creating an off-balance-sheet income stream from the on-balance-sheet lending account. ...Download file to see next pagesRead More
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