The economics of securitisation are still valid. From an economist’s point of view, it makes perfect sense to shift credit risks around. It enables banks to originate new loans and it offers investors a new asset class with attractive risk-return profiles. It is a much more efficient way to get exposure to credit risk than, say, by investing in bank stocks or deposits.
However, the subprime debacle made clear that something was rotten in the state of securitisation.
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