Securitizing

Securitizing is a term used in two related but distinct contexts. In finance and risk management, securitizing refers to the process of transforming illiquid assets into tradable securities by pooling them and issuing securities backed by the cash flows of the pool. This typically involves creating a special purpose vehicle (SPV) to hold the assets, structuring multiple tranches with different risk and return profiles, and providing credit enhancement to improve investor credit quality. The resulting securities—such as asset-backed securities (ABS), residential or commercial mortgage-backed securities (RMBS/CMBS), and collateralized debt obligations (CDOs)—are sold to investors who receive payments derived from the underlying assets’ cash flows. Servicing arrangements and legal transfer of ownership are key components, and ratings agencies often assess the tranches to guide investor choice. Securitization can transfer risk and improve funding liquidity for lenders, but it also concentrates and redistributes credit risk in the investor base and can create complexity and opacity.

In security studies and political science, securitizing describes a different process: presenting an issue as a security threat that requires emergency or exceptional measures beyond normal politics. This securitizing move involves a securitizing actor, a referent object to be protected, and an audience whose acceptance legitimizes extraordinary policy actions. The concept emphasizes discourse and framing, and critics argue that securitization can erode civil liberties or public accountability if adopted uncritically.

Note: The term may be used in both financial and political contexts; they are distinct but share the underlying idea of converting an issue into something higher-priority or tradable.