On The Use Of Asset Securitization In The Processing Of Commercial Banks' Bad Assets

Asset Securitization is developed as one of the most important innovations in financial instruments during the 20th century period, with its perfectly-designed structure largely prosperingthe financial market. The distinctive function in optimizing the structure of bank credit loans has proved it so many advantages and prospects in international financial market that even some scholars contend that "the spectrum of Asset Securitization virtually extends to the edge of people's imagination." Moreover under current situations at the eve of China's join into WTO, it seems especially urgent and of great significance for our nation to cope with inferior credit assets now insisting in many banks. This paper attempts first to introduce how Asset Securitization processes, and then discuss how to employ appropriate approaches in credit improving according to status in quo in China to make use of Asset Securitization more effectively and efficiently in handling with inferior assets in commercial banks. The paper includes following five sections.The first section aims to introduce the definition, implication and originality of Assets Securitization, also its latest development in domestic and overseas field.The second section emphasizes on the parties and transaction procedures applicable to Asset Securitization and some questions related to the special purpose vehicle (SPV), which separates the risk and profit of Assets Securitization from the initiator's own credit and simultaneously improves this project's rating. Furthermore, this section also means to discuss several distinctive characteristics of Asset Securitization such as property isolation, credit isolation, credit improving etc. In the end several most popular forms of Asset Securitization will be presented, such as Asset-based Security, Pay-through Security, Pass-through Security and Strip Debenture Bond developed from it.The third section gives successful examples mat Assets Securitization is broadly applied to handle with inferior bank assets abroad. Subsequently the author analyzes the conditions in which inferior credit assets in our nation's banks lie and compares among a few solving alternatives proposed by theorists and practical divisions. Basing on that, the author maintains "Asset Securitization is definitely an effective way to solve inferior bank assets problem."The fourth section is a crucial part of the thesis, with its order to debate an efficient way to apply Asset Secuntization to practically handle with inferior bank assets in China. The author investigates how to construct an asset pool for die use of inferior assets Securitization, then how to improve credit based on that pool and how to re-construct cashflows and sell the credit loans thereafter The author argues that future cashflows coming from the asset pool can be kept stable by several credit improving methods such as fiscal compensation reserve, risk loss reserve and multi-strata issuing structure of CMO etc. Then an integrated analysis quickly follows. Finally some more detailed questions are listed, including how to realize the payback of both principals and interests of such securities under different conditions that the debtor can or cannot claim payment responsibility according to corresponding clauses.It should be yet pointed out that soil of large-scaled application of asset Securitization in China is still to be cultivated further. Therefore, the fifth, also the last section is designated to analyze macroeconomic circumstances needed for its application, which includes how to supplement legislature and tax system, how to develop a specific investing group, how to regulate mediatory institutions, how to set up an supervision organization and how to strengthen elite trainings.