CHAPTER 5 Securitized banking

DOI: 10.4324/9780429356773-7

5.1 Introduction

In many people’s mind, banking, or financial intermediation, may be best characterized as in Figure 5.1: a bank takes deposits from households and firms who have funds to save, and issues loans to households and firms who need funding; just as the figure shows, a bank may raise deposits from some households to issue mortgage loans to other households. The bank then collects mortgage payments from the borrowers and returns some of the proceeds to the depositors, earning a profit from the difference between lending rate and deposit rate—the so-called net interest margin.

Figure 5.1 Traditional intermediation chain

Source: Shin (2010).

However, modern banking has ...

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