Benefits and Risks of Securitization in Financial Analysis

Running head: FINANCIAL ANALYSIS
Financial Analysis
Name of the Student
Name of the University
Author’s Note

1FINANCIAL ANALYSIS
Table of Contents
Introduction......................................................................................................................................2
Question 1........................................................................................................................................2
Question 2........................................................................................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

2FINANCIAL ANALYSIS
Introduction
The present study describes the benefits of securitization and the risks connected to this.
The study also focuses on the example of securitization transaction over the last three years and
also elucidates on the detailed transaction. The GFC (Global Financial Crisis) during the year
2007-2008 has drawn attention to the securitization as well as its role during the crisis. During
GFC, the markets of securitization collapsed after mortgage relating instruments has experienced
credit quality deterioration (Solomon, 2012). This GFC crisis period illuminated bad side of
securitization. When housing bubble occurred, the investors suffered huge loss, loses confidence
as well as interest in securitization. However, stringent regulatory response for addtressing
securitization markets shortcomings have rendered costly transactions for the banks. Minimal
interest of investor along with difficult regulatory needs have detrimental effect on securitization.
Prior to this crisis, few banks framework of funding their operation via securitization has been
blamed to increase credit growth as well as leverage in the economy (Nikolova, Rodionov &
Mottaeva, 2016).
Question 1
Securitization refers to the procedure where cash- generated financial assets namely the
mortgages, auto loans, financial loans are mainly pooled together into tradable securities. The
economic vales of the assets and cash flows are redirected for supporting payments on created
securities. However, these securities are sold to the range of investors such as insurance
enterprises, banks and so on. Cetorelli and Peristiani, (2012) opines that the securitization
procedure has been complex and includes banking group to play the major role. The banks acts
the assets originator that is to be transferred to securitized assets as servicing agents. Moreover,