Financial Intermediation: A Further Analysis
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Securitization is most likely the most visible part of the shadow banking industry. That is mostly due to its alleged involvement of the 2007–2009 financial crisis. Born as a tool to reduce capital charges for banks, securitization became an industry in its own right. Also here a combination of regulation and demand triggered the emergence of shadow banking. The crisis learned that adjustments were needed to reduce the unanticipated consequences and unregulated business practices. Both the (inter)national regulators and supervisory bodies introduced an avalanche of changes to make the industry safer while maintaining the capital reduction benefits for banks. Risk retention, different techniques of tranching, selection at the gate (STS) and all sorts of compliance rules were introduced. After reviewing all efforts involved and despite all improvements realized, Nijs is still not convinced that it has made the industry effectively safer and many questions are still unanswered. NOTE: the chapter does not provide a full analysis related to securitization. Other chapters will delve deeper into certain securitization-related topics or resurface certain (new) features.