Securitisations

Securitisations are financial processes through which pools of assets, such as loans or receivables, are transformed into marketable securities. This process allows originating institutions to raise funds by selling claims on these assets to investors. The primary purpose of securitisation is to improve liquidity, transfer risk, and diversify funding sources.

The typical securitisation process involves several key steps. First, a financial institution, known as the originator, aggregates a portfolio of financial assets such as mortgages, auto loans, or credit card receivables. These assets are then transferred to a special purpose vehicle (SPV), a legal entity created specifically for the transaction. The SPV issues securities backed by the asset pool, which are sold to investors. These securities can be structured in different tranches, offering varying levels of risk and return to cater to different investor preferences.

Securitisations provide benefits including access to broader capital markets and risk diversification for originators. For investors, they offer opportunities for yield and diversification; however, they also involve risks such as credit risk, liquidity risk, and structural complexity. Notable examples of securitisation include mortgage-backed securities (MBS) and asset-backed securities (ABS).

The global financial crisis of 2007-2008 highlighted some risks associated with securitisations, particularly concerning the mispricing of risk and the complexity of structured products. As a result, regulatory frameworks have been enhanced in many jurisdictions to improve transparency, risk assessment, and investor protection in securitisation markets. Despite these challenges, securitisations remain an important financial tool for liquidity management and risk transfer in modern financial systems.