Top

Published in:

2017 | OriginalPaper | Chapter

2. The Alchemy of Securitization. Evolution and Perspectives

Authors : Paolo Comuzzi, Roberto Tasca, Simona Zambelli

Published in: Structured Finance

Publisher: Springer International Publishing

Activate our intelligent search to find suitable subject content or patents.

search-config

AI-assisted search

Off

Abstract

The term securitization is used to represent the process whereby assets are pooled together, with their cash flows, and converted into negotiable securities to be placed into the market (Tasca and Zambelli 2005) or to be used as collateral in refinancing transactions with Central Banks or with market participants. Securitization is aimed at transforming illiquid assets into securities. These securities are backed or secured by the original underlying assets and are generally defined as Asset Baked Securities (ABS). Theoretically, any financial assets producing cash flows (receivables, residential and commercial mortgages, credit card receivables, and other consumer and commercial loans) can be securitized (see, e.g., Buchanan 2016, Buchanan 2017; Kara et al. 2016; Malekan 2014; Lipson 2012). The main purpose of the chapter is to analyze the basic characteristics and the market structure of traditional securitization, especially with reference to the Italian market.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

previous chapter Characteristics and Common Features of Structured Finance Transactions

next chapter Project Finance

For the lack of regulation, the securitization activity has also been labeled as shadow banking (see, e.g., Gennaioli et al. 2013).

For current updates about rules and regulations on securitization in Italy see, e.g., the following website: http://www.securitisation-services.com/it/normative/index.php.

An ABS represents a security backed by specific assets. This means that principal and interest repayment rely directly on the capability of the underlying assets to generate the expected cash flows. In the US it is common to distinguish between:

Asset backed securities (ABS), which represent securities backed by specific assets (auto loans, credit card receivables, student loans, equipment leases). This definition does not include mortgages loans or corporate bond loans;
Mortgage backed security (MBS), which are securities backed by specific mortgage loans.

Outside the US, the definition of ABS may include deals backed by mortgages loans. For the purpose of this chapter, we will use the term of ABS to indicate all classes of securitized instruments. See: Bhattacharya and Fabozzi (1997), Saunders and Cornett (2004), Burton et al. (2003), Spotorno (2003).

For a recent overview of the literature on securitization and its real effects see, e.g., Berg et al. (2015), Buchanan (2016, 2017), Lu et al. (2013), Albertazzi et al. (2011). See also: Battacharya and Fabozzi (1997), Fabozzi (1999), Colagrande et al. (1999), Bontempi and Scagliarini (1999), Artale et al. (2000), Damilano (2000), De Angeli and Oriani (2000), Rumi et al. (2001), Porzio et al. (2001), Galletti and Guerrieri (2002), Ferro Luzzi (2000), Gualtieri (2000), La Torre (2000), (Caneva 2001), Navone et al. (2002).

Sections 2.2, 2.3, 2.4, 2.6 represent a revised version of Tasca and Zambelli (2005).

See: Saunders and Cornett (2004), Burton et al. (2003), Spotorno (2003).

Recently, another form of securitization became important: the whole business securitization in relation to leveraged buyout acquisitions (SBO deals). For more details on SBO deals, see Buszko et al. (2013). For more details on Leveraged Buyout deals and their legal structure, see, e.g., Zambelli (2008, 2010).

For a recent overview of the literature on securitization and its real effects see, e.g., Berg et al. (2015), Buchanan (2016, 2017), Lu et al. (2013), Albertazzi et al. (2011). For a recent overview of the risks connected to securitization see, e.g., Chen et al. (2017), Le et al. (2016), Laurent et al. (2016), Cifuentes and Pagnoncelli (2014), Wu et al. (2011).

The example represented in Fig. 2.1 considers a transfer of credits and receivables between the Originator and the SPV.

The payments collection related to the securitized portfolio is managed by a third party, the Servicer, which usually is represented by the Originator itself.

For a critical overview on the real efficacy of rating agency to actually forecast the default probability of a issuer, see, e.g. Lützenkirchen et al. (2013), Peicuti (2013).

In a traditional financing, instead, the return to investors depends mainly by the capacity of the company to generate sufficient cash flows to repay its debt obligation.

This Section is based on Tasca and Zambelli (2005).

The expected return to investors depends mainly on the risk associated with the cash flows guaranteed by the securitized assets, rather than the default risk of the Originator.

JCR-VIS Credit Rating Company Limited (2003), Bond Market Association (2002).

In the US there is no bankruptcy code provision regulating the legal status of securitized assets. Securitized assets are then considered as legally sold and are excluded from the eventual bankruptcy procedure of the Originator. For more information see: Nomura Fixed Income and Research (2002).

In case of bankruptcy of the SPV, the period in which it is possible to reclaim the sold assets is six months. See: Spotorno (2003).

See, e.g., Saunders and Cornett (2004), Burton et al. (2003), Spotorno (2003), Leixner (http://pages.stern.nyu.edu), JCR-VIS Credit Rating Company Limited (2003), Nomura Fixed Income and Research (2002), Bond Market Association (2002).

Saunders and Cornett (2004), Burton et al. (2003), Spotorno (2003), Leixner (http://pages.stern.nyu.edu), JCR-VIS Credit Rating Company Limited (2003), Bond Market Association (2002).

For more information: JCR-VIS Credit Rating Company Limited (2003), Nomura Fixed Income and Research (2002).

See Caputo et al. (2001).

By law, the SPV needs be exclusively involved with one or more securitization processes.

So far, the issuances of ABS in Italy have been directed to qualified investors and consequently no information prospects have been elaborated.

In the US market, the servicer activity is usually played by auditing companies and not by financial institutions.

Acharya, V. V., & Richardson, M. (2009). Causes of the financial crisis. Critical Review, 21(2–3), 195–210.

Albertazzi, U., Eramo, G., Gambacorta, L., & Salleo, C. (2011). Securitization is not that evil after all. Bis Working Paper 341.

Albertazzi, U., Eramo, G., Gambacorta, L., & Salleo, C. (2015). Asymmetric information in securitization: An empirical assessment. Journal of Monetary Economics, 71, 33–49.CrossRef

Artale, G., Pampana, A., & Rajola, C. (2000). Guida alla securitization: I vantaggi, gli strumenti e gli adempimenti della nuova legge. Roma: Bancaria Editrice.

Beck, M. (2014). Why one-size-fits all securitisation reform won’t work. International Financial Law Review, 33, 1–4.

Beltran, D. O., Cordell, L., & Thomas, C. P. (2017). Asymmetric information and the death of ABS CDOs. Journal of Banking and Finance, 76, 1–14.

Berg, T., Streitz, D., Wedow, M. (2015). Real Effects of Securitization. BAFFI CAREFIN Centre Research Paper No. 2015–14. Available at SSRN: https://ssrn.com/abstract=2696906.

Bhattacharya, A. K., Fabozzi, F. (1997) Asset-Backed Securities. In Frank J. (Ed.), Fabozzi Assoc.

Bond Market Association. (2002). International swaps and derivatives association. Special Purpose Entities (SPEs) and the Securitization Markets: Securities Industry Association.

Bontempi, P., & Scagliarini, G. (1999) La securitization. Milano: Giuffré.

Buchanan, B. G. (2016). Securitization: A financing vehicle for all seasons? Journal of Business Ethics, 138(3), 559–577.

Buchanan, B. G. (2017). The way we live now: Financialization and securitization. Research in International Business and Finance, 39, 663–677.

Burton, M., Nesiba, R., & Lombra, R. (2003). Financial markets and institutions. USA: Thomson South-Western.

Buszko, M., Deffains-Crapsky, C. (2013). Whole business securitization in the structuring and refinancing of LBOs. Zarzadzanie finansami firm, 321, 26–38.

Caneva, P. (2001) Cartolarizzazione. Considerazioni per una valutazione economica, Banche e Banchieri, 1, 65.

Caputo Nassetti, F., & Fabbri, A. (2001) Trattato sui contratti derivati di credito. Milano: Egea.

Cerasi, V., & Rochet, J (2014). Rethinking the regulatory treatment of securitization. Journal of Financial Stability, 10(1), 20–31.

Chen, Z., Liu, F. H., Opong, K., & Zhou, M. (2017). Short-term safety or long-term failure? empirical evidence of the impact of securitization on bank risk. Journal of International Money and Finance, 72, 48–74.

Cifuentes, A., & Pagnoncelli, B. K. (2014). Demystifying credit risk derivatives and securitization: Introducing the basic ideas to undergraduates. Journal of Derivatives, 22(2), 110–118.

Colagrande, F., Fiore, L., Grimaldi, M., & Prandina D. (1999) Le operazioni di securitization. Milano: Edizioni Il Sole 24 ore.

Damilano, M., (2000) La securitisation dei crediti. Torino: Giappichelli Editore.

De Angeli, S., Oriani, M. (2000) La securitization dei crediti bancari. Milan: Franco Angeli.

Egly, P., Jackson, D., & Johnk, D. (2015). The impact of securitization and bank liquidity shocks on bank lending: Evidence from the U.S. Banking and Finance Review, 7(2), 55–86.

Fabozzi, F. (1999). Issuer perspective on securitization. New York: McGraw-Hill.

Ferro Luzzi, P. (2000) La cartolarizzazione: riflessioni e spunti ricostruttivi. Bancaria, n.1, 24.

Fligstein, N., & Roehrkasse, A. F. (2016). The causes of fraud in the financial crisis of 2007–2009: Evidence from the mortgage-backed securities industry. American Sociological Review, 81(4), 617–643. doi:10.1177/0003122416645594.

Galletti, D., Guerrieri, G. (2002). La cartolarizzazione dei crediti. Bologna: Il Mulino.

Gennaioli, N., Shleifer, A., & Vishny, R. W. (2013). A model of shadow banking. Journal of Finance, 68(4), 1331–1363. doi:10.1111/jofi.12031.

Gualtieri, P. (2000). Taluni aspetti problematici attinenti la realizzazione dei programmi di securitization in Italia. Banche e Banchieri, n. 2, 93.

JCR-VIS Credit Rating Company Limited, Securitization, special Report, 2003.

Juhas, G. (2013). Securitization—great benefits and potencial cause of the global financial crisis. Megatrend Review, 10, 115–125.

Kara, A., Marques-Ibanez, D., & Ongena, S. (2016). Securitization and lending standards: Evidence from the European wholesale loan market. Journal of Financial Stability, 26, 107–127. doi:10.1016/j.jfs.2016.07.004.

Kravitt, J., Burki, S., Wong, C., Toennies, D. (2015). Implementation of Securitization Regulatory Reform. The Journal of Structured Finance, 21, 83–91. doi:10.3905/jsf.2015.21.1.083.

LA Torre, M. (2000) La cartolarizzazione dei crediti: pregi e limiti della normativa italiana. Bancaria, n. 2, 44.

Laurent, J., Sestier, M., & Thomas, S. (2016). Trading book and credit risk: How fundamental is the basel review?. Journal of Banking and Finance, 73, 211–223. doi:10.1016/j.jbankfin.2016.07.002.

Le, H. T. T., Narayanan, R. P., & Van Vo, L. (2016). Has the effect of asset securitization on bank risk taking behavior changed?. Journal of Financial Services Research, 49(1), 39–64.

Leixner, T., Securitization of Financial Assets, Holland & Knight LLP, http://pages.stern.nyu.edu.

Lipson, J. C. (2012). Re: Defining securitization. Southern California Law Review, 85(5), 1229–1282.

Lu, K. J., Luor, T., Chiung-Ju, L., Lu, H. (2013). Contribution to research on securitization: Assessment of SCI and SSCI Articles from 1996–2012. Informatica Economica, 17, 39–46.

Lützenkirchen, K., Rösch, D., & Scheule, H. (2013). Ratings based capital adequacy for securitizations. Journal of Banking and Finance, 37(12), 5236–5247. doi:10.1016/j.jbankfin.2013.04.021.

Malekan, S., & Dionne, G. (2014). Securitization and optimal retention under moral hazard. Journal of Mathematical Economics, 55(1), 74–85. doi:10.1016/j.jmateco.2014.10.003.

Navone, C. (2002) I profili fiscali della securitization. Rassegna Tributaria, n. 4, 22.

Neuhauser, K. L. (2015). The global financial crisis: What have we learned so far?. International Journal of Managerial Finance, 11(2), 134–161. doi:10.1108/IJMF-02-2015-0014.

Nomura fixed income and research (2002) Thirty Years Later Securitization is Still Good for America.

Peicuti, C. (2013). Securitization and the subprime mortgage crisis. Journal of Post Keynesian Economics, 35(3), 443–456. doi:10.2753/PKE0160-3477350306.

Porzio, C., Spotorno, L., Zorzoli, S., & Fauceglia, G. (2001). Securitization e crediti in sofferenza. Roma: Bancaria Editrice.

Rumi, G. (2001) Securitisation, Edizioni Il Sole 24 ore.

Ryan, S. G., Tucker, J. W., & Zhou, Y. (2016). Securitization and insider trading. Accounting Review, 91(2). 649–675. doi:10.2308/accr-51230.

Saunders, A., Cornett, M. C. (2004) Financial Markets and Institutions, A modern perspective, McGraw-Hill, International Ed.

Solomon, D. (2012). The rise of a giant: Securitization and the global financial crisis. American Business Law Journal, 49(4), 859–890.

Spotorno, L. (2003). La securitization: strutture contrattuali e modalità operative, in Forestieri, Corporate e investment banking, Milan: Egea.

Tasca, R., Zambelli, S., (2002) Securitization: Current and future trends In Caselli, S., Gatti, S. (ed), Structured Finance, Chapter 2, Berlin: Springer.

Wu, D., Yang, J., & Hong, H. (2011). Securitization and banks’ equity risk. Journal of Financial Services Research, 39(3), 95–117 doi:10.1007/s10693-010-0092-5.

Zambelli, S. (2008). The dark side of LBOs. Investors be forewarned! Corporate Ownership and Control, 5, 59–78.CrossRef

Zambelli, S. (2010). Private equity and leveraged buyouts in Italy. To prohibit or not to prohibit, that is the question. In D. Cumming, (Ed.), Private equity. fund types, risks and returns, and regulation. Kolb Series in Finance, New Jersey: Wiley.

Title: The Alchemy of Securitization. Evolution and Perspectives
Authors: Paolo Comuzzi
Roberto Tasca
Simona Zambelli
Publisher: Springer International Publishing
Book: Structured Finance
Print ISBN: 978-3-319-54123-5

Electronic ISBN: 978-3-319-54124-2

Copyright Year: 2017
DOI: https://doi.org/10.1007/978-3-319-54124-2_2