Arvopaperistineen

Arvopaperistineen is a Finnish term that translates to "securitization" in English. It refers to the financial process of pooling together various types of contractual debt, such as mortgages, auto loans, and other receivables, and selling them as securities to investors. These securities are then bought and sold on financial markets. The underlying assets, once securitized, are typically held by a special purpose vehicle (SPV) that issues the securities backed by the cash flows from these assets.

The primary purpose of securitization is to transform illiquid assets into marketable securities, thereby providing liquidity to originators of these assets, such as banks. It allows originators to free up capital, which can then be used to make new loans or investments. For investors, securitization offers an opportunity to invest in a diversified pool of assets that might otherwise be inaccessible. The performance of securitized products, often referred to as asset-backed securities (ABS), is tied to the cash flows generated by the underlying debt obligations.

Securitization can involve various types of assets, including residential mortgages (forming mortgage-backed securities, MBS), commercial mortgages, auto loans, credit card receivables, and student loans. The process involves structuring these pools of assets into different tranches, each with a varying level of risk and return. Investors can choose tranches that align with their risk tolerance. While securitization can enhance market liquidity and credit availability, it also carries risks, including those associated with the quality of the underlying assets and the complexity of the financial instruments involved.