Global Financial Crises and the Future of Securitization Essay

2539 Words Mar 17th, 2012 11 Pages
GLOBAL FINANCIAL CRISES AND THE FUTURE OF SECURITIZATION

Contents

1. Introduction……………………………………………………………………...3
2. Overview………………………………………………………………………...3
3. Structured-finance securitization ………………………………………………..5
4. Key segments of the securitization market………………………………………6
5. Rating Agencies Deficiencies....................………………………………………8
6. Future of Structured-finance securitization……………………………..……...10
7. Conclusion................................................…………………………………...…11
8. References………………………………………………………………….......12

LIST OF FIGURES

Figure 1. Securitization markets: key participants…………………………………4
Figure 2. European securitization issuance 2002-2010…………………………….7
Figure 3. American securitization issuance
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In the wake of the crisis, structured-finance securitization issuance has dropped sharply. Key segments of the market continue to rely on government-backed liquidity and asset purchase programs. Yet despite the aforementioned structural shortcomings, it seems likely that in the long run, structured-finance securitization will once again become an important channel for debt markets; in the shorter term, securitization may even rebound to support the global economic recovery, provided certain important pre-conditions are in place.

4. Key segments of the securitization market

Prior to the global financial crisis, benign economic and financial conditions fuelled an explosion in global securitization issuance. Following the crisis, issuance of private-label securitization slumped. Although there have been some signs of a re-emergence in European issuance in 2010, key segments of the securitization market continue to rely on support from the ECB’s liquidity program, and is aptly named “retained[5]” issuance (Figure 2). European banks create internally-structured securitisations (typically Residential Mortgage-Backed Securities) that can be used as collateral for liquidity generation via the ECB, in turn freeing up their own balance sheets for further lending.

Figure 2. European securitization issuance 2002-2010, EUR bn

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