ChapterNineRiskManagement:Asset-BackedSecurities,LoanSales,CreditStandbys,andCreditDerivatives1

KeyTopicsTheSecuritizationProcessSecuritization’sImpactandRisksSalesofLoans:NatureandRisksStandbyCredits:PricingandRisksCreditDerivativesandCDOs–BenefitsandRisks9-22

IntroductionManyissuessuchascreditriskandtheburdenofhavingtoraisenewcapitaltomeetthefundingneedsofyourcustomersandsatisfyregulatorystandardskeepmanagersbusyNewtoolssuchassecuritizingloans,sellingloansoffbalancesheets,issuingstandbylettersofcredit,andparticipatingincreditderivativecontractscanhelpwithriskmanagementNotonlyhavethesetoolsattemptedtocontrolriskmoreeffectively,buttheyhavealsoopenedupnewsourcesoffeeincomeAsthegreatcreditcrisisof2007-2009emergedwealsolearnedthatthesenewrisk-managementtoolscarrysignificantlimitations,includingunexpectedrisksandextremecomplexity,thatcanoverwhelmunpreparedfinancialinstitutionsandwreakhavocwiththefinancialsystem9-33

SecuritizingLoansandOtherAssetsSecuritizationofloansandotherassetsisasimpleideaforraisingnewfundsRequiresalendinginstitutiontosetasideagroupofincome-earning,relativelyilliquidassets,suchashomemortgagesorcreditcardloans,andtosellrelativelyliquidsecurities(financialclaims)againstthoseassetsintheopenmarketIneffect,loansaretransformedintopubliclytradedsecuritiesThelenderwhoseloansaresecuritizediscalledtheoriginatorTheseloansarepassedontoanissuer,whoisusuallydesignatedaspecial-purposeentity(SPE)TheSPEisseparatedfromtheoriginatortohelpensurethat,iftheoriginatinglendergoesbankrupt,thiseventwillnotaffectthecreditstatusofthepooledloans,supposedlymakingthepoolanditscashflow“bankruptcyremote”9-44

(1).Pass-throughsecurities（过手证券）Itsownershipbelongstotheinvestors,thedebtobligationsNolonger