Lesson 2 of 5 · 13 min
Benefits for issuers, investors and markets
Securitization lets lenders recycle capital, lets investors buy exactly the loan risk they want, and makes the whole financial system more liquid, though timing and credit risks remain.
In short
- Issuers: sell illiquid loans, cut balance-sheet risk and leverage, earn fees, lower funding costs and lend beyond the size of their own balance sheet.
- Investors: get bond-like exposure to loans they could not originate themselves, tailored to their risk, return and maturity needs, with wider diversification.
- Economies and markets: more liquid, tradable securities, better price discovery, more liquidity in the system and lower liquidity risk, plus an extra funding channel for companies.
- Remaining risks: timing of cash flows (contraction and extension) and the credit risk of the underlying loans.
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