On The Securitization Of Assets

Securitization of assets is an important financial innovation, which originated in America at the end of the 1960's. It made the banks and the financial market together. At first, the purpose of the invention of assets securitization was to provide liquidity to the mortgage market. There is a large market for assets securitization today. Assets securitization may be the wave of the future and it may be the trend of financial market in the future. This thesis mainly discusses the trend of the assets securitization.Many economists look on the function of the capital market as the power to America's New Economy. Securitization of assets is an important innovation in the capital market. As America has benefited from the assets securitization, the practices are already spreading to other countries in the world. For example, securitization of personal loans occurred in France in 1990. The first public asset-backed deal in Canada, issued in May 1991, was for $350 million (Canadian) dollars backed by automobile loans purchased from Chrysler Credit Canada.Assets securitization has become a main trend in the financial market. As a member of the emerging market in the world, China must follow the trend of securitization. It is a milestone showing China's big step toward the wave of the finance globalization. The thesis consists of three chapters.Chapter Ⅰ: assets securitization is a inevitable trend of the future finance. Securitization of assets was innovated in America mortgage market in order to provide liquidity to the mortgage market. After thirty years' development, assets securitization has got a wide developing in many deferent markets. It provides some new financial production. Assets securitization has been used in a lot of countries and may be the wave of the financial market in the future.First, assets securitization provides the revolution to the global financial market. At first, securitization of assets has major implications for financial markets as well as the structure of financial institutions. Securitization provides direct financing between borrowers and investors, short-circuiting the traditional intermediaries. The second, securitization of assets provides most benefits to the financial market. The benefits to issues are improving the liquidity of these institutions, to investors are providing more investing chance, and to borrowers are reducing the cost of their financing.Second, assets securitization is a financial innovation. Securitization provides direct financing between borrowers and investors, short-circuiting the traditional intermediaries. Recasting cash flows so as to create different bond classes or tranches provides varying maturities acceptable to a wide range of investors. Thus, securitization serves a role similar to maturity intermediation while shifting its risk to the ultimate lenders. The availability of securities with smaller denominations than the underlying loans accomplishes denomination intermediation. The success of securitization indicates that it is a more efficient method for linking borrowers and investors than traditional financing through financial intermediaries. The true innovations in this market are not really the securities themselves, but rather they are the reduction of risk through pooling of assets and private credit enhancement, and the repackaging of the cash flows from assets in a way that relieves the intermediary of reliance on its own assets to finance the credit. It is also a method of off-balance-sheet financing.Chapter Ⅱ, the environment of the assets securitization market. First, the assets that match the characteristics for securitization must be chosen. Second, many institutions take part in the process of securitization. Finally, there is a suit of operation procedure of assets securitization.Chapter Ⅲ, the practice of developing assets securitization in China. This chapter is the core part of the thesis. It is divided into five parts.Part 1 discusses the necessity of developing assets securitization in China.