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The Capital Markets Process Of Securitisation

3569 words - 14 pages

Table of ContentsExecutive summary2Letter of transmittal3Development and growth of securitisation 5Securitisation Structure7Securitisation and the Capital Market9Securitisation and the Capital Market11Future Direction and Growth of Securitisation in the Capital Markets13Appendix15Bibliography16References 18Executive SummaryThis report outlines the introduction and development of securitisation, looking at its origins in the American markets and its introduction and subsequent growth in the Australian market. The high levels of growth lie in the deregulation of the banking industry which has lead to the emergence of more sophisticated financial instruments, including the increased usage of securitisation as a process of selling off non-marketable assets to generate funds and manage the structure of the balance sheet. The growth in securitisation has impacted on both the global capital markets and the housing markets. Its growth created borrowing opportunities for companies that would have otherwise found it difficult access large amounts of funding. It has also helped to reduce the cost of funds for financial institutions, and assisted in developing a more competitive housing loan market, with non ADI's, and increasingly regional banks are using securitisation as a means of increasing their funding capacity. Yet the securitisation market is ever evolving, with the introduction of Basel II in 2007 impacting of the future level of securitisation. Furthermore as financial instruments become more sophisticated it is expected that the types of assets being securitised will also evolve.Letter of TransmittalTO: Ms Julie MargetFROM: Lucy DronDATE: 9 September 2004SUBJECT: The capital markets process of securitisationHere is the business report requested at the beginning of semester 2, detailing the development of capital markets in Australia and overseas.The report explores the origins of securitisation its structure and its impact on both the housing and capital markets. It concludes by examining the impact that Basel II and asset-backed securities will have, in particular, on the securitisation market in Australia.I hope that you find the information found in this report to be enlightening and educational.Development and Growth of SecuritisationSecuritisation is a financing technique that allows almost any asset, or pool of assets, that has a reliable, contractual or predictable cash flow to be repackaged, purchased and then funded as debt securities and sold to investors (HREF:1). The most commonly securitised asset classes are home loans, commercial property loans, automotive loans, and trade receivables.Securitisation was first developed in the United States during the 1970's through the emergence of residential mortgage-backed securities, supported by the guarantee of government-sponsored agencies. The Australian market has existed since the 1980's and is the most sophisticated outside of the U.S (Liaw, A. Eastwood, G 2000, pg1). Mortgage-backed...

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