Wiktionary
n. 1 (context commerce finance English) The fact or process of securitizing assets; the conversion of loans into securities, usually in order to sell them on to other investors. 2 (context counterterrorism English) The act of taking visible countermeasures against terrorism.
Wikipedia
Securitization in international relations ( Copenhagen School) is the process of state actors transforming subjects into matters of 'security': an extreme version of politicization that enables extraordinary means to be used in the name of security.
Issues that become securitized do not necessarily represent issues that are essential to the objective survival of a state, but rather represent issues where someone was successful in constructing an issue into an existential problem.
Securitization theorists assert that successfully securitized subjects receive disproportionate amounts of attention and resources compared to unsuccessfully securitized subjects causing more human damage. A common example used by theorists is how terrorism is a top priority in security discussions, even though people are much more likely to be killed by automobiles or preventable diseases than from terrorism.
Securitization studies aims to understand "who securitizes (Securitizing actor), on what issues (threats), for whom (referent object), why, with what results, and not least, under what conditions."
Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities, which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). Investors are repaid from the principal and interest cash flows collected from the underlying debt and redistributed through the capital structure of the new financing. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by other types of receivables are asset-backed securities (ABS).
Critics have suggested that the complexity inherent in securitization can limit investors' ability to monitor risk, and that competitive securitization markets with multiple securitizers may be particularly prone to sharp declines in underwriting standards. Private, competitive mortgage securitization played an important role in the U.S. subprime mortgage crisis.
In addition, off-balance sheet treatment for securitizations coupled with guarantees from the issuer can hide the extent of leverage of the securitizing firm, thereby facilitating risky capital structures and leading to an under-pricing of credit risk. Off-balance sheet securitizations also played a large role in the high leverage level of U.S. financial institutions before the financial crisis, and the need for bailouts.
The granularity of pools of securitized assets can mitigate the credit risk of individual borrowers. Unlike general corporate debt, the credit quality of securitized debt is non- stationary due to changes in volatility that are time- and structure-dependent. If the transaction is properly structured and the pool performs as expected, the credit risk of all tranches of structured debt improves; if improperly structured, the affected tranches may experience dramatic credit deterioration and loss.
Securitization has evolved from its beginnings in the late 18th century to an estimated outstanding of $10.24 trillion in the United States and $2.25 trillion in Europe as of the 2nd quarter of 2008. In 2007, ABS issuance amounted to $3.455 trillion in the US and $652 billion in Europe. WBS (Whole Business Securitization) arrangements first appeared in the United Kingdom in the 1990s, and became common in various Commonwealth legal systems where senior creditors of an insolvent business effectively gain the right to control the company. There are main players in securitization, they include investors, securiters and corporates.
Usage examples of "securitization".
With his plans to push loans into the gas market, Skilling knew a securitization expert could give his fledgling business access to an almost endless supply of capital.
Spencer Stuart had been hired by Skilling to track down his securitization expert, and Fastow, a twenty-eight-year-old banker, seemed to fit the bill.
The first securitization idea, named Cactus, was hatched in 1991, utilizing an accounting device called a special-purpose entity-the critical piece of such financings.