Securitization: Lessons Learned and the Road Ahead

Abstract

This paper examines the financial stability implications arising from securitization markets, with one eye on the past and another on the future. The paper begins by deriving a number of “lessons learned” based on an examination of key industry developments in the years before the crisis. Emphasis is placed on the various ways in which securitization markets dramatically changed shape in the years preceding the crisis, vis-à-vis their earlier (simpler) incarnation. Current impediments to securitization markets are then discussed, including a treatment of various regulatory initiatives, the operational infrastructure of securitization markets, and related official sector intervention. Finally, a broad suite of policy recommendations is presented to address the factors that either contributed to the crisis or may currently be posing obstacles to growth-supportive, sustainable securitization markets. These proposals are guided by the objective of preserving the beneficial features of securitization, while mitigating those that pose a potential risk to financial stability.

Keywords: Financial crisis, Capital markets, Monetary policy, Financial instruments, Asset management, Global Financial Crisis 2008-2009, Finance, Intermediation, Bank, Mortgages, and Foreclosures, Institutional Investors, Investment Banking, Rating, Rating Agencies, Regulation., securitization, credit rating, credit rating agencies, capital requirement, corporate bonds, hedge funds, private equity, securities commissions, equity investments, capital standards, capital gains, net capital, corporate loans, tradable securities, mortgage securities, futures trading, capital adequacy, private equity funds, securities loan, capital inflows, capital adequacy ratio, capital structure, private capital inflows

JEL Classification: G20, G21, G23, G24, G28