Study On The Risk Of Asset Securitization

Asset securitization is a process of pooling various categories of assets and creating securities that derive their value from the asset pool and income streams derived therefrom. Asset securitization is one of the most important and vigorous innovations on the financial market ever since 1930s. However, asset securitization is a financial innovative project with a complicated structure, with many parties involved, with rigid transactions, highly marketized and highly risky. As a result, together with the remarkable structural benefits it offers, it brings us various risks. We should make the best of the macroeconomic and microeconomic benefits brought by securitization on one hand and carefully plan the prevention of securitization risks on the other. At the same time, we should implement well-arranged supervision over it to enable it to better serve our economic development. 1. Main contents and arguments of the dissertation The dissertation consists of 4 chapters. Chapter One is an introduction to asset securitization, which involves the basics, the fundamental process and the macroeconomic effect of asset securitization. Chapter Two introduces the worldwide development of asset securitization and its impact on China. Chapter Three discusses and explores in great detail the variety of risks in the process of asset securitization and possible preventions we can have. Chapter Four is a chapter in which the author's views on the supervision over asset securitization. 1.1 Introduction to asset securitization The defining feature of asset securitization is that it builds a channel for communication and transfer between direct financing and indirect financing, and constructs a mutual transference mechanism of banking credit and market credit. The focus of asset securitization lies in the separation and restructuring of the risks and gains in loans for more efficient valuation and reallotment with the purpose of benefiting all parties. Due to the difference in the underlying assets, asset securitization can be divided into Mortgage-Backed Securitization (MBS) and Asset-Backed Securitization (ABS). Based on the difference in the securities repayment structure, the securitization tools can be divided into pass-through securities, Mortgage-backed bonds and pay-through securities. The emergence of asset securitization has brought with it enormous economic benefits. It will lead to the optimization of financial structure, the construction of a bridge connecting different financial markets and the promotion of a more active prevention of and solution to financial crisis. Furthermore, it will impose a far-reaching impact on the development of consumer loans and Central Bank's macro regulation and control of economy. 1.2 The worldwide development of asset securitization and its impact on China The author holds the opinion that the promotion from the government is of vital importance during the process of asset securitization. And the sound development of asset securitization cannot be achieved without a perfected legal framework, an advanced credit system and a favorable accounting and taxation environment. The experience of the United States and Hong Kong serves as excellent reference for China's securitization. As for the implementation of securitization in China, the author thinks we should begin with mortgage loans, mid and long-term loans, non-performing loans (NPLs) of commercial banks and charges for infrastructure projects, which is proper at the time and easier to succeed. 1.3 The variety of risks in the process of asset securitization and the possible preventions1.3.1 Risks and their preventions concerning underlying assets Although the assets that can be securitized are quite unlimited, they must meet certain conditions or the securitization will be undermined from the very start. 1.3.2 Risks and their preventions concerning special purpose vehicle (SPV) SPV is an indispensable part of asset securitization. It has to realize the bankruptcy remoteness between the underlying assets and its originator and...