The corporate goal of value creation has direct implications for loan pricing and securitization.
Break-even loan pricing: equity invested = present value of expected cash flows. We have seen that the margin on loans should incorporate three elements: an ‘equity’ spread to reward shareholders, the probability of default, and the amount that would be recovered in case of default.
Securitization: should the bank keep or sell the loans? Incentives for selling loans include freeing of the bank’s equity, access to liquidity, or the diversification of the loan portfolio.