Abstract

http://ssrn.com/abstract=997079
 
 

Citations (6)



 


 



Securitization: The Tool of Financial Transformation


Frank J. Fabozzi


EDHEC Business School

Vinod Kothari


Indian Institute of Management (IIM), Kolkata


Yale ICF Working Paper No. 07-07

Abstract:     
Securitization as a financial instrument has had an extremely significant impact on the world's financial system. First, by integrating capital markets and the uses of resources - such as mortgage originators, finance companies, governments, etc. - it has strengthened the trend towards disintermediation. Having been able to mitigate agency costs, it has made lending more efficient; evidence of this can be observed in the mortgage markets. By permitting firms to originate and hold assets off the balance sheet, it has generated much higher levels of leverage and, though arguably, greater economies of scale. Combination of securitization techniques with credit derivatives and risk transfer devices continues to develop innovative methods of transforming risk into a commodity and allow various market participants to tap into sectors which were otherwise not open to them.

In its broadest sense, the term "securitization" implies a process by which a financial relationship is converted into a transaction. A financial transaction is the coming together of two or more entities; a financial relationship is their staying together. For example, a loan to a corporation is a financial relationship; once the loan is transformed into a tradable bond, it is a transaction. We find several examples in the history of the evolution of finance of relationships that have been converted into transactions. The creation of "stock," representing ownership in a corporation, is one of the earliest and most important examples of this process because of its impact on the growth of the corporate form of business organization. The process of converting loans to corporations of high credit quality corporate borrowers, and in the 1970s expanding that opportunity to speculative-grade corporate borrowers, into publicly traded bonds is another example of this. Commercial paper is another example of securitization of relationships as it securitizes a trade debt.

Number of Pages in PDF File: 14

Keywords: Integrating Capital Markets, Mortgages, Leverage, Financial Transformations

working papers series


Download This Paper

Date posted: June 28, 2007  

Suggested Citation

Fabozzi, Frank J. and Kothari, Vinod, Securitization: The Tool of Financial Transformation. Yale ICF Working Paper No. 07-07. Available at SSRN: http://ssrn.com/abstract=997079

Contact Information

Frank J. Fabozzi (Contact Author)
EDHEC Business School ( email )
France
215 598-8924 (Phone)
Vinod Kothari
Indian Institute of Management (IIM), Kolkata ( email )
Kolkata, West Bengal 700104
India
Feedback to SSRN


Paper statistics
Abstract Views: 17,547
Downloads: 7,071
Download Rank: 364
Citations:  6

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.344 seconds