Before defining the term securitization we need to distinguish between the securitization and the disintermediation terms. Gardener and Revell (1988) stated that they have huge zone of intersection whereas each is on a diverse phenomenon. Disintermediation is the opposite of direct funding where the facilities of an intermediary are given up and the borrowers and investors transact directly with each other. The connection between both terms appears when the direct funding is undertaken in terms of tradable securities. One notable characteristic of securitization is the excessive rise in the issuance of the entire types of securities, the traditional and the novel ones. For distinction, what falls under the term securitization rather than disintermediation, for instance, is loan debt that is traded from an institute to another and known as an asset-backed funding. It is important to note that there are numerous diverse securities markets where the technique of securitization has helped to introduce novel securities and markets, satisfying the missing kinds; or as called filling the gaps. Generally, the impact of securitization is to segregate severe credit risk into credit risk that is devoted to numerous notes to be passed to a purchaser. However, commonly, the bank is left with a sort of obligation (Gardener and Revell, 1988).
An essential part in the originate-to-distribute model (OTD model/securitisation model) is that securities are valued by rating agencies. Regardless of the sophistication of securitization activity, the main concept behind it is that if the bank goes bust the SPV will not be affected. In other words, the SPV will not bust as the bank bankrupt. This is known as Bankruptcy-remote. Hence, the asset-backed ...
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...credit accessibility, borrowing costs and product alternatives (Taylor, 2009: 144). Furthermore, it is essential to keep in mind that in order for this entire process to function fully the SPV has to be bankruptcy remote from the bank and vice versa. Whereas, if this appeared not to be the situation, this means that the risk has not been shifted completely and the bank is yet left with some sort of liability. Nonetheless, in the period of financial crisis, the case was that an SPV may be bankruptcy remote from the bank, and the bank may decide to secure its status by backing up the vehicle either by purchasing again the securitised assets or by prolonging its loans in the occasion of a funding turmoil. This might be a selected choice in situations where the bank decides to over-securitise in the coming future for the sake of maintaining the securitization approach.
In order to analyze Ally, I will be evaluating its balance sheet and performance ratios over the period from June 2006 to June 2013. This will show the progression of the bank throughout the 2008-2009 financial crisis. I will compare Ally’s financial data to the whole US banking industry as a way to analyze the banks risk and performance over that period. Factors such as profitability, credit risk, capital adequacy, liquidity risk, interest rate risk, market risk, ad off balance sheet exposures will all be evaluated.
Despite their protective and righteous purport, TBTF regime has become a significant public matter in question. Trials of effort to justify TBTF did not turn out so convincing partially because its definition has not yet been fixed. In other words, there is no set standard of “who” precisely is being bailed out and who is not, under “what” circumstances. Beyond the bound of possibility to avoid all insolvency losses of the bank, it is inevitable to make decisions to protect the chosen but not all depositors. This decision primarily relies ...
The presence of systemic risk in the current United States financial system is undeniable. Systemic risks exist when the failure of one firm may topple others and destabilize the entire financial system. The firm is then "too big to fail," or perhaps more precisely, "too interconnected to fail.” The Federal Stability Oversight Council is charged with identifying systemic risks and gaps in regulation, making recommendations to regulators to address threats to financial stability, and promoting market discipline by eliminating the expectation that the US federal government will come to the assistance of firms in financial distress. Systemic risks can come through multiple forms, including counterparty risk on other financial ...
【b】Frederics S, Mishikin and Apostolos Serletis. "Chapter 13: Banking and the Management of Financial Institutions " The economics of money, banking and financial market. 5th Canadian. Pearson, 306. Print.
The credit crisis of 2008 resulted in, for the first time since 1930, a global credit market pause (Arner, 2009). Lehman Brothers, a stand-alone investment bank, along with other companies such as Bear Stearns, American International Group, Inc. (AIG), Fannie Mae, and Freddie Mac suffered catastrophic losses. However, unlike Lehman Brothers, the federal government instituted rescue efforts for Bear Stearns and AIG, along with Fannie Mae and Freddie Mac. The government’s lack of intervention regarding Lehman Brothers prompted questions as to why the government showed inconsistency in implementing bailout efforts. In addition, allowing Lehman Brothers to fail set off a series of unfortunate events that the government wanted to avoid by not intervening.
Flawed financial innovations: the implementation of innovations in investment instruments such as derivatives, securitization and auction-rate securities before markets. The indispensable fault in them is that it was difficult to determine their prices. “Originate to distribute securities” was substituted by securitization which facilitated the increase in ...
The forced liquidation of some $3 trillion in private label structured assets has been deprived from the financial markets and the U.S. economy has obtained a vast amount of liquidity that the banking system simply cannot restore. It is not as easy to just assign blame within these case however it is noted that the credit rating agencies unethical decisions practices helped add onto the financial crisis of 2008 and took into account the company’s well-being before any other stakeholders.
In previous years the big financial institutions that are “too big to fail” have come to realize that they can “cheat” the system and make big money on it by making poor decisions and knowing that they will be bailed out without having any responsibly for their actions. And when they do it they also escape jail time for such action because of the fear that if a criminal case was filed against any one of the so called “too big to fail” financial institutions it...
Unlike most other bonds, the mortgaged backed securities were made up of a bunch of bonds pooled together. Because of that, the rate at which the failure of these bonds were not suspected to be high as a couple failing would not likely result in the failures of the rest. It was believed that a mass failure would not happen. This is where Credit Default Swaps (CDS) come in. Similar to insurance policies, CDSs are bought to insure CDOs in case of failure. Up until the failure occurs, the buyer of these swaps are required to pay a premium. In turn, one of the causes of the financial crisis is the lack of regulation and lack of risk-detection that occurred in these subprime, or below good quality, loans. The banks lost in the end; however, they were bailed out by the
Companies will be considered in financial distress when all of their liquidity has to be used to pay their outstanding debt. Companies can file bankruptcy to deal with and manage the lack of liquidity. When a company files bankruptcy the company is protected and bondholder or creditors cannot sue them for money that is owed. According to the authors of Fundamentals of Corporate Finance, “In principal a firm becomes bankrupt when the value of its assets equals the value of its debt.” (Ross...
...s the risk of BNPP having to hold the TOBs through a process of credit deterioration on the underlying bonds below A+.
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
On the one hand, the Basel Accords have contributed greatly to the stability of the international banking system, with remarkable results. On the other hand, unfortunately, though predictably, they have also given different actors in the financing market the incentive and means to evade regulations. These behaviors have led to a new set of financial risks in the markets.
There are many different forms of securities that can be sold and each has its set of issues. Firstly, we can sell securities in the form of assets, such as mortgage repayments. This is a very low risk ...
Although there were numerous factors that contributed to the recent financial crisis, derivatives like mortgage backed securities (MBS) and collateralized debt obligations (CDOs) had a strong impact on the events that transpired. In the MBS market, the cash flows from a mortgage is broken up into different parts and then sent to whoever can best handle the different risks at the best price. These parts are then repackaged into new financial instruments which are sold to investors (Rickards, 2012). The new portfolios were used to back collateralized debt obligations (CDOs) which were divided into tranches and sold to investors (Hull, 2011). These portfolios were guaranteed by the government national mortgage association (GNMA) which allowed banks to lend money without worrying about borrowers defaulting on their loans.