Link to the University of Pittsburgh
Link to the University Library SystemContact us link
AEI Banner

Financial Intermediation Theory and Implications for the Sources of Value in Structured Finance Markets. NBB Working Paper Nr.71, July 2005

Mitchell, Janet. (2005) Financial Intermediation Theory and Implications for the Sources of Value in Structured Finance Markets. NBB Working Paper Nr.71, July 2005. [Working Paper]

[img]
Preview
PDF
Download (176Kb) | Preview

    Abstract

    Structured finance instruments represent a form of securitization technology which can be defined by the characteristics of pooling of financial assets, delinking of the credit risk of the asset pool from the credit risk of the originating intermediary, and issuance of tranched liabilities backed by the asset pool. Tranching effectively accomplishes a "slicing" of the loss distribution of the underlying asset pool. This paper reviews the finance literature relating to security design and securitization, in order to identify the economic forces underlying the creation of SF instruments. A question addressed is under what circumstances one would expect to observe pooling alone (as with traditional securitization) versus pooling and tranching combined (as with structured finance). It is argued that asymmetric information problems between an originator and investors can lead to pooling of assets and tranching of associated liabilities, as opposed to pooling alone. The more acute the problem of adverse selection, the more likely is value to be created through issuance of tranched assetbacked securities. Structured finance instruments also help to complete incomplete financial markets, and they may also appear in response to market segmentation.

    Export/Citation:EndNote | BibTeX | Dublin Core | ASCII (Chicago style) | HTML Citation | OpenURL
    Social Networking:
    Item Type: Working Paper
    Subjects for non-EU documents: EU policies and themes > Policies & related activities > economic and financial affairs > Single Market > capital, goods, services, workers
    Subjects for EU documents: UNSPECIFIED
    EU Series: UNSPECIFIED
    ["eprint_fieldname_eusries" not defined]: UNSPECIFIED
    EU Annual Reports: UNSPECIFIED
    Series: Series > National Bank of Belgium (Brussels) > Working Papers
    Depositing User: Phil Wilkin
    Official EU Document: No
    Language: English
    Date Deposited: 04 Mar 2006
    Page Range: p. 26
    Last Modified: 15 Feb 2011 17:38
    URI: http://aei.pitt.edu/id/eprint/5738

    Actions (login required)

    View Item

    Document Downloads