Subject category:
Finance, Accounting and Control
Published by:
International Institute for Management Development (IMD)
Version: 27.05.2008
Length: 20 pages
Data source: Published sources
Abstract
The objective of the case is to discuss the development of asset-backed securities and collateralised debt obligations (CDO). Securitisation has been a way to remove assets to shrink the bank's balance sheet, as well as regulatory and economic capital. A special purpose vehicle (SPV) which was bankruptcy-remote was formed to acquire debt securities or bank loans. The debts were then repackaged, stratified and sold to investors. Synthetic securitisation did not require a true sale of assets. Instead, a sponsor bank merely transferred the credit exposure to counterparty through a derivative agreement and the assets were still kept on the balance sheet.
About
Abstract
The objective of the case is to discuss the development of asset-backed securities and collateralised debt obligations (CDO). Securitisation has been a way to remove assets to shrink the bank's balance sheet, as well as regulatory and economic capital. A special purpose vehicle (SPV) which was bankruptcy-remote was formed to acquire debt securities or bank loans. The debts were then repackaged, stratified and sold to investors. Synthetic securitisation did not require a true sale of assets. Instead, a sponsor bank merely transferred the credit exposure to counterparty through a derivative agreement and the assets were still kept on the balance sheet.