Financial Innovation, Structured Finance and Off Balance Sheet Financing: The Case of Securitisation

Abstract:     
The paper seeks to investigate the use and role of securitisation as main structured finance tool, and to assess the legal pitfalls, if any, that underlie the arrangement of this financing technique. This is done firstly by looking at the legal development of securitisation and at the regulatory incentives that have more recently shaped the originate and distribute model; attention will then be drawn to the legal mechanisms that govern the structuring of the transaction, from its simplest form, to the more complex CDOs and CDSs. The paper also looks at the more practical role of securitisation within financial scandals – in particular in the context of the most recent banking collapses – by presenting the case of two institutions (Northern Rock and Lehman Brothers) which were affected by similar strategic choices as regards the over reliance on securitised products.

Number of Pages in PDF File: 42

Keywords: Securitisation, financial innovation, structured finance, CDO, CDS

working papers series