Bank Asset Securitization Mechanism Analysis And Concept Of Operations

Asset-Backed Securitization (ABS) is the most important and the fastest-developing financial innovation tool in the world financial sector for the last three decades. It has become a widely accepted way of financing in the international capital market. International operational experience has shown that ABS can give great impetus to the development of commercial banks, securities markets and the national economy.Chinese economy is in a transition. The traditional financing and operational mode of China's commercial banks can no longer adapt to the trends of international financial securitization and the requirement of developing China's own financial and securities market. Under these circumstances, we should take reference to and apply the financial innovation tool of ABS, and establish an operational mechanism that suits Chinese characteristics. Based on a systematic analysis of the operational mechanism of ABS, this paper focuses on exploring how to achieve ABS in China's banking sector and secure an operational environment required.This paper is composed of five parts. Part one makes a thorough analysis on the general theory of ABS with a clear definition of what ABS is. It looks into the elements and background that give rise to ABS and explains the driving forces, structure and developing trend of ABS.Part two gives a systematic description, from bank ABS point of view, of the features, operating mechanism and types of ABS, the necessary conditions for its implementation, as well as the operating methods of credit enhancement and credit rating that are required for implementing the ABS.Part three illustrates the developing trend of financial globalization and liberalization, and the resulting "separation from media" between capital demand and supply. In view of the realities of China's banking sector, which is heavily burdened by unfavorable loans and inadequate capital flow, it is realistic and feasible for Chinese commercial banks to absorb the ABS concept and apply this financial innovation tool in a creative manner. It also gives an in-depth analysis on the constraint and barriers for Chinese banks to apply ABS.Part four makes a systematic and thorough elaboration on the operational thinking in which ABS can be implemented by Chinese banks and the designing of its specific operation modes. This forms the key part of this paper. In view of the concrete reality in China, it points out the principles, the specific areas and the point of entry for ABS to be applied. It explores deep into the operational framework and workflow of securitization of unfavorable bank asset and mortgage-backed securitization, as well as the related risks associated with them.Implementing ABS is a systematic, complicated and emerging business that requires favorable conditions and operational environment. Part five makes specific proposals in four areas regarding the necessary conditions required, favorable supporting measures, and establishing an institutionalized system for ABS implementation in Chinese banking sectors.All five parts of the paper are interrelated, which makes a generalized-to-specific and progressive analysis on applying ABS in China. In research methodologies, the paper closely combines theoretical studies with bank practices. In addition, the paper made constructive proposals on many specific issues. The theoretical designing of the paper has certain degree of operability.