It’s securitization, but not as we knew it
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It’s securitization, but not as we knew it

The dynamics of the US securitization market have changed beyond recognition, while the role of banks in ABS has evolved too. The excesses of the past have gone and securitization is now a safe and reliable funding tool for consumer lending. So why don’t banks want to talk up their role in the market?


Illustration: Hit&Run



The role of the banks in today’s securitization market is very different to what it was in the run-up to the great financial crisis. Banks no longer load assets onto their own balance sheets with a view to securitizing them.

There is no more ‘originate to distribute’, the grand name for the strategy behind so much of the dysfunctional lending that drove the sub-prime residential mortgage-backed securities (RMBS) crisis.

Today banks provide funding to a growing army of private and buy-side institutions that make the loans, and the banks then arrange securitization exits for them.

“We are going back to a model that worked pre-crisis, where banks are no longer the aggregators of assets,” says the global head of securitization at one top five US ABS bank. “Asset managers are aggregating loans, and the role for the bank has moved from provider to facilitator.”

In essence, securitization has gone back to what it was always supposed to be.

“The market is characterized by high-quality companies raising ABS for funding,” the banker says.

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