Asset-backed Securitization Of Banks And Our Country's Route Choice

As the most important innovative technology of finance in the later half of the 20thcentury, Asset-backed Securitization (ABS) has spread widely across the world since itsborn. In the first three quarters of 2005, the assets securitization products issued in theAmerican medium and long-term bond market had reached the value of 2.24 trillion USdollars, accounting for 53.6％of total issued amount of the whole American bond market,while the new securitization products issued in Europe has reached the value of 196,200million euro, a 9.5％increase compared with the same period last year. Until the end of2004, the value of the new issued securitization products in the whole Asian market hasrisen rapidly from 7 billion dollars in 1998 to 68 billion dollars. Some experts predict thatthe international financial market will soon stepped into the stage with securitizationproducts taking the lead.With the development of the securitizaiton in the whole world, our country'sexplorations of Asset-backed Securitization (ABS) also began from the late 80s of lastcentury. However, restricted to the domestic social surroundings of economy, law and soon, most of the early ABS or ready-to-be ABS adopted the offshore mode. In June of 2003,China Huarong Asset Management Corporation adopted a flexiblemode——entrust-layering to dispose 13.25 billion creditors rights. In April of 2004,Ningbo branch of China Industrial and Commercial Bank of China executedNon-performing Loan Securitization with the book value of 2.6 billion. Up to December of2005, the successful issue of the first Kaiyuan Asset-backed Securities of 4.2 billion RMBby China Development Bank and the wonderful issue of first Mortgage-backedSecurities(MBS) in 2005 by China Construction Bank during the bond market among banksindicate the formal launch of the ABS under our country's policy regulation and foreshowthe domestic ABS has entered into a substantive break-through stage.As a developing country with a undeveloped financial market, the possible risks should be seriously considered when introducing the mature innovative technology of thewestern countries. However some researches also show that the effect that ABS brings tothe bank may be neutral. Therefore, analyzing the possible effect of ABS rationally,discussing the proper route of our country's ABS combining the actual national condition ofour country are of great significance to promote the development of ABS of banks and putit on a sustainable road.The research of this essay is as follows: From the international trend, ABS has been animportant innovative financial tool that can change the financial market structure. Thesuccessful pilot case of ABS and the assertion by related experts also show that there is arapid increase of ABS in our country. But in practice, what effect on earth will ABS bring tobank? As a developing country with undeveloped financial system, what is the meaning ofintroducing ABS? If we introduce ABS, how can we promote it to be mature rapidly andplay its due role with the lowest cost and the minimum risk? This essay will discuss thesequestions, and mainly consists of three parts: The first part is the theoretical analysis ofABS of banks. Specifically this part discusses the economic meaning of ABS and thepossible effect of ABS. The second part is the empirical analysis of the possible effect ofABS. Through this part we can treat the possible. consequences of ABS of banks rationally.The third part is the discussion about our country's actual national conditions, including theoperating plight of our country's banking industry, comment on the securitization practice,goal of our bank's ABS and the proper route of deepening ABS in the future and so on. Theconcrete contents are as follows:Chapter Two is about relevant concepts, theories and the current situation of ABS inthe world. This chapter introduces relevant concepts, sorts and basic theories of ABS,inducing the new characteristic of ABS as a new technology. This chapter also analysessimply the meaning to the participant and the current situation of ABS in the world.Chapter Three is the economic analysis of assets securitization of banks. ABS is aremedy for banks' defects in essence and caused by the internal need of seeking theirdevelopments. The focal point of this chapter is the analysis of the necessity of theexistence of the bank as an intermediary and the banks' internal defects, then analyses themeaning of ABS for remedying the bank's defects, that is discussing the internal cause oflaunching ABS among banks from the theoretical aspect. But the different asset chosen tobe securitized will bring the different effect. This chapter also discussed the possible riskeffects of the bank as a microcosmic entity through setting up bank's behavior theory. Chapter Four is the empirical test ABS of banks. This chapter makes use of the data onthe line of Federal Reserve Bank of Chicago. First it validates the cause of ABS ofAmerican bank holding company, then it tests bank's ABS behavior and the subsequentmutual effect among liquidity effect, capital adequacy ratio effect and credit risk effect andat last it discusses the different possible risk effects brought by different ABSs.Chapter Five is about the operating plight of our country's banking industry and thereality of ABS in our country. This chapter in fact is an investigation into the currentsituation of our country's financial system. It especially expatiates the misplaced functionof commercial bank in the capital market and a series of the subsequent operating plight.On that basis it simply discusses the reality of ABS in our country.Chapter Six is the practice of and comment on ABS of banks in our country. Thischapter introduces the pilot case of ABS that had already carried on in our country andcomments on the result.Chapter Seven is the improvement and development of ABS of banks in our country.This chapter discusses how to carry on ABS of banks in our country and proposes that weshould accelerate the process of ABS. It then discusses the localization of target of ABS ofbanks and indicates that only when we take the medium and long-term loans which canremedy the capital function as the target of ABS and carry on ABS under the prerequisite ofdissolving the risk of the bank can we solve the problem that the banks' function and thecapital market function are misplaced seriously. At last it puts forward some suggestions onfurther carrying on ABS.Chapter Eight is the conclusion. This chapter is a summary of the main contents,conclusions and innovation.The main conclusions of this research are as follows: (1) ABS is a remedy for banks'defects in essence and caused by the internal need of seeking their developments. (2) Intheory, ABS can strengthen banks' liquidity, but when the purpose of carrying on ABS is toimprove capital adequacy ratio, the constrained conditions of different ABSs are differentand also the risk effects of different ABSs are different. (3) The empirical data of USAshow that the motivation of American banks' ABS comes more from the liquiditymanagement need and the banks can really improve the liquidity and the capital adequacyration through ABS but increase the whole risk of the bank. (4) As for the plight of thebanking industry, the aim of ABS of banks in our country should be oriented to renew thefunction of capital market and commercial bank. We can transform effectively various risks which are formed in the bank through ABS.(5) In order to realize the goal above, the authorputs forward suggestions that we should take the medium and long-term loans as target atpresent considering the actual national conditions and the possible effect from introducingABS.