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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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The economics of securitization

How can this rather complex transaction increase the market value of e-Bank? What are the main economic advantages of securitization?

  1. First, you will notice that e-Bank keeps a part of the revenue. Indeed, a fee is retained for servicing the loan. Second, if the revenue on the loan is attractive, it can be sold to the SPV at a high price, creating a capital gain for e-Bank.

  2. Banks have several good reasons for selling loans:

    • The most obvious one (if we refer to Stage 7) is to avoid the costly equity requirement. Once the loan is sold, the capital requirement has no more reason to be, and there is no more need for an ‘equity’ spread.[1] Notice that, under the Basel II regulation discussed in Stage 8, the equity relief ...

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