Asset-Backed Securities: Principles

Banks used to take in deposits and onlend those deposits to borrowers, pocketing the difference in interest rates. Securitization is a means of giving investors ownership of a separate legal entity that is performing the role of onlending to borrowers. We discuss the growth of the market and the size to which it has grown. The means by which the return in separate legal entity can be enhanced is also examined, and why both issuers and investors participate in this market.