Securitisation is the process of removing assets, liabilities or cash flows from the corporate balance sheet and transferring them to third parties through the creation of tradeable securities. The market started in the banking sector in the late 1980ies and early 1990ies, whenWall Street banks commenced to pool assets and to place them into trust vehicles which issued tradeable securities with several risk and return characteristics. The pooling of assets in a portfolio results in a lower risk in terms of the variance of returns for investors. The development started with pools of residential mortgages called Mortgage Backed Securities (MBS) and was followed by Collateralised Mortgage Obligations (CMO) which are pools of MBS. Shortly after the introduction of MBS, commercial MBS followed including commercial real estate. The next step were Asset Backed Securities (ABS) including pools of receivables, leases and any kind of assets which can be securitised.
KeywordsCash Flow Capital Market Credit Risk Life Insurance Mortgage Back Security
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