Securitization in East Asia

Regional Economic Integration Working Paper No. 12

73 Pages Posted: 14 Feb 2008

See all articles by Douglas W. Arner

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Paul Lejot

The University of Hong Kong - Faculty of Law

L Schou-Zibell

Asian Development Bank

Date Written: January 2008

Abstract

Securitization offers a range of benefits for Asia's financial systems and economies as a mechanism to assist funding and investment. As a form of structured finance, reliable and efficient securitization can assist development by enabling financial systems to deepen and strengthen┬┐thus contributing to overall economic growth and stability.

It must be recognized, however, that there are both overt and more subtle risks in certain uses of securitization. The credit and liquidity crisis that began in the United States and spread to other developed financial systems in mid-2007 exposed the danger associated with securitization: excessive risk-taking or regulatory capital arbitrage rather than a tool to assist more conventional or conservative approaches to funding, risk management, or investment. Securitization has also been criticized for rendering financial markets opaque, while contributing to a growing emphasis in the global economy of credit intermediation conducted in capital markets rather than through banks.

This study examines the institutional basis of these concerns by investigating the use of securitization in East Asia, questioning both the growth in regional activity since the 1997/98 Asian financial crisis, and the reasons for it remaining constrained. The paper concludes with a discussion of proposals to support proper development of securitization in the region, including institutional mechanisms that could better allow securitization to enhance development and financial stability. If East Asia begins to make fuller use of securitization, its motive will be to meet funding or investment needs in the real economy rather than balance sheet arbitrage of the kind that peaked elsewhere in 2007.

Keywords: Securitization, East Asia, Debt Markets, Risk Transfer

JEL Classification: F3, G2, K2

Suggested Citation

Arner, Douglas W. and Lejot, Paul and Schou-Zibell, Lotte, Securitization in East Asia (January 2008). Regional Economic Integration Working Paper No. 12 . Available at SSRN: https://ssrn.com/abstract=1092282 or http://dx.doi.org/10.2139/ssrn.1092282

Douglas W. Arner (Contact Author)

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Paul Lejot

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

Lotte Schou-Zibell

Asian Development Bank ( email )

6 ADB Avenue, Mandaluyong City 1550
Metro Manila
Philippines

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