SECURISATION

SECURISATION

Securisation is a phenomenon according to which it is cheaper and more convenient for the borrowers to issue securities rather than to borrow money from the banks. Some of the banks borrowers raise money in securities markets.

Securisation is the conversion of bank loans and assets into marketable securities for sale to investors. Securities offered for sale can be purchased by other depositary institutions, non bank investors.

Securisation turns traditional non marketed financial assets into marketable securities. It involves transfer of block of assets to a special purpose vehicle company (issuer) which finances its purchase by the issue of debt . The bank does not have to allocate loan loss reserves against these assets. The capital ratios are improved; it can grant new loans from security proceeds sold to investors. If the securisation is successful, the bank can sell assets and enhances its capital adequacy ratio retaining some of the servicing income.

The note holders are protected from risks associated with the assets. An institution that transfers the assets continues to manage them as servicing agent. The process merges the credit markets and the capital markets; banks receivables are repackaged as bonds and other types of credit. Activity banks tend to act as sellers of assets rather than portfolio lenders who keep all the loans in their own portfolio. The bankers consider the loan quality in terms of their marketability in the capital markets rather than the probability of their repayment by borrowers.

In the UK securisation loses popularity, the mostly used form being the securisation of mortgages; in the USA it is more common and covers a greater variety of loans.

Banks securitize and sell a broader base of loan receivables. These arrangements are facilitated by an investment bank and involve a letter of credit guarantee from a foreign bank/ insurance company.

Text Comprehension

Answer the questions:

What is securisation?

What conversion is it?

What does it involve?

What happens if the securisation is successful?

What happens to note holders?

What does this process merge?

How do the bankers consider this loan?

What can you tell about securisation in the UK, USA and Romania?

Who facilitate these arrangements?

Vocabulary:

Borrower (persoana care imprumuta)

Convertion (delictul echivalent al crimei sau furtului)

Holder (persoana aflata in posesia unei cambia)

Lender( persoana care imprumuta bani)

Marketable securities (titluri de valoare ce pot fi vandute sau cumparate la o bursa de valori)

Marketability  (posibilitatea de a vinde ceva usor)

Proceeds (bani primiti dintr-o vanzare dupa deducerea cheltuielilor )

Repack = to pack again (a reimpacheta )

Receivables (creante)

Securities (gajuri/ ipoteci)

Securisation  (actiunea de transformare a imprumutului intr-un gaj)

Securitize( a trasforma un imprumut intr-o ipoteca/un gaj)

Servicing agent (agent care achita dobanda unui imprumut)

Servicing a loan (achitarea dobanzii unui imprumut)