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To highlight that the risk retention rules associated with the holding of securitization investments, commonly thought to apply only to the sponsors and manufacturers of securitisations, also affect EU institutional investors and potentially impact non-EU fund managers that invest in these assets.

To address which classes of investor are affected and then to provide an overview of the obligations on affected investors that do invest in securitization investments.

There is much that is straightforward about the relevant obligations but there are a number of quirks that have not necessarily been fully appreciated by the market: these include the applicability to investors on a “look through” basis that may, inter alia, affect US credit fund managers with EU institutional investors.

EU institutional investors that do invest in this asset class should be considering the need to take practical steps to prepare written due diligence materials; non-EU credit managers that run e.g. ABS funds offered into the EU or in which there may be EU institutional investors should consider if they may have any obligations under the EU Securitization Regulation.

The aspects of the Securitization Regulation that affect institutional investors and regular fund managers have not been addressed as thoroughly as they have by the main securitization sector (banks, CLO managers and similar). This article seeks to remedy that and should prove of value to compliance, legal and other professionals at those types of institution.

This paper provides a comprehensive overview of the gradual evolution of the supervisory policy adopted by the Basel Committee for the regulatory treatment of asset securitisation. The pathology of the new “securitisation framework” is carefully highlighted to facilitate a general understanding of what constitutes the current state of computing adequate capital requirements for securitised credit exposures. Although a simplified sensitivity analysis of the varying levels of capital charges depending on the security design of asset securitisation transactions is incorporated, the author does not engage in a profound analysis of the benefits and drawbacks implicated in the new securitisation framework.

The purpose of this paper is to discuss the financial turmoil of 2008 that followed the collapse of the housing bubble in the USA which was the starting point of a global economic crisis. Huge costs are borne by every part of society. Much wealth has been destroyed. Millions of jobs have been lost. The crisis has tarnished faith in free enterprise, in the financial system, and in financial theory. Likely, the era of laissez‐faire capitalism that started during the Reagan‐Thatcher years is ending. We are entering a period of profound uncertainty. It is imperative that the moral dimension of capitalism be restored.

The paper is based on a review of theory and historical evidence relating to financial bubbles and financial regulation.

The author offers suggestions on how to rebuild the global financial system. We need: a systemic risk regulator, independent from business and political influence; higher capital requirements for all systemically significant financial service firms; restrictions on proprietary trading in commercial banks; transparency in derivatives; new ways to compensate bankers that reduce the incentive to take excessive risks; consumer protection against defective financial products; and the re‐establishment of the principle of fiduciary duty.

The paper lists practical suggestions on how to reform the global financial system.

Economic success is based on trust. After the 2008 crisis, regulatory reform is the best way to rebuild trust in the financial system.

The paper offers a unique perspective based in part on insights drawn from behavioral finance.

This paper aims to offer a comprehensive comparison of the characteristics between banks that securitize and banks that do not and to provide evidence of the capital arbitrage theory of securitization.

First, the fundamental financial similarities and differences between banks that securitize assets and banks that do not participate in the securitization market are tested. Second, variables that help predict whether a bank securitizes assets are analyzed. Third, the determinants of securitization extent in banks that securitize assets are investigated – for general securitization extent and for specific type of asset securitized. Using a sample of 112 banks that securitize different assets, a matched sample of banks that do not securitize based on entity type and size is created. A quarterly panel data set of these banks dating back to 2001 is used.

The results indicate that bank size is a significant determinant of whether a bank securitizes. Further, overall securitization extent is negatively related to the bank's capital ratio (in support of capital arbitrage theory), but this result is primarily driven by credit card securitization.

Utilizing a unique data set of quarterly data from bank Call Reports; the panel data set is large relative to past studies. A matched sample approach was used to test fundamental financial similarities and differences between securitizing and non‐securitizing banks. In addition to aggregated securitization, an examination was made of how different classes of assets affect the banks' risk‐based capital ratios and test the capital arbitrage theory of securitization.

This macroeconomic analysis chronicles the risk behavior of market-based financial intermediaries and traditional depository institutions from 1980 to 2010 and assesses the role that competition, financial innovation and regulation played in their evolving risk behaviors. The paper aims to discuss these issues.

Using a two-part CAPM framework in line with Campbell et al. (2001), risk measures are constructed through the decomposition of industry-level risk and firm-level idiosyncratic risk. These constructed measures are used in a VAR model with a historical decomposition approach to assess the impact of the three factors on the relative risk behavior of these firms.

The results indicate that the market-based and traditional intermediaries exhibited a period of diverging relative average firm-level risk behavior followed by a period of converging risk behavior. Using the derived firm-level risk measures, the impact of competition, financial innovation and regulatory changes on explaining these changing risk behaviors is explored. The results suggest that regulatory changes (i.e. deregulation) can best explain the relative risk behavior over the divergence period through late 1999 relative to the other two variables. The period from November 1999 through the financial crisis marks the converging risk behaviors across these intermediaries. Over this period, the changing nature of competition played the most important role in driving these behaviors.

The key contribution of this analysis highlights the evolutionary changes in the risk behaviors of market-based and traditional financial intermediaries and the factors driving both their diverging and converging nature over time.

The purpose of this paper is to develop a model to hedge annuity portfolios against increases in life expectancy. Across the globe, and in the industrial nations in particular, people have seen an unprecedented increase in their life expectancy over the past decades. The benefits of this apply to the individual, but the dangers apply to annuity providers. Insurance companies often possess no effective tools to address the longevity risk inherent in their annuity portfolio. Securitization can serve as a substitute for classic reinsurance, as it also transfers risk to third parties.

This paper extends on methods insurer's can use to hedge their annuity portfolio against longevity risk with the help of annuity securitization. Future mortality rates with the Lee-Carter-model and use the Wang-transformation to incorporate insurance risk are forecasted. Based on the percentile tranching method, where individual tranches are aligned to Standard & Poor's ratings, we price an inverse survivor bond. This bond offers fix coupon payments to investors, while the principal payments are at risk and depend on the survival rate within the underlying portfolio.

The contribution to the academic literature is threefold. On the theoretical side, building on the work of Kim and Choi (2011), we adapt their pricing model to the current market situation. Putting the principal at risk instead of the coupon payments, the insurer is supplied with sufficient capital to cover additional costs due to longevity. On the empirical side, the method for the German market is specified. Inserting specific country data into the model, price sensitivities of the presented securitization model are analyzed. Finally, in a case study, the procedure to the annuity portfolio of a large German life insurer is applied and the price of hedging longevity risk is calculated.

To illustrate the implication of this bond structure, several sensitivity tests were conducted before applying the pricing model to the retail sample annuity portfolio from a leading German life insurer. The securitization structure was applied to calculate the securitization prices for a sample portfolio from a large life insurance company.

The findings contribute to the current discussion about how insurers can face longevity risk within their annuity portfolios. The fact that the rating structure has such a severe impact on the overall hedging costs for the insurer implies that companies that are willing to undergo an annuity securitization should consider their deal structure very carefully. In addition, we have pointed out that in imperfect markets, the retention of the equity tranche by the originator might be advantageous. Nevertheless, one has to bear in mind that by this behavior, the insurer is able to reduce the overall default risk in his balance sheet by securitizing a life insurance portfolio; however, the fraction of first loss pieces from defaults increases more than proportionally. The insurer has to take care to not be left with large, unwanted remaining risk positions in his books.

In this paper, we extend on methods insurer's can use to hedge their annuity portfolio against longevity risk with the help of annuity securitization. To do so, we take the perspective of the issuing insurance company and calculate the costs of hedging in a four-step process. On the theoretical side, building on the work of Kim and Choi (2011), we adapt their pricing model to the current market situation. On the empirical side, we specify the method for the German market. Inserting specific country data into the model, price sensitivities of the presented securitization model are analyzed.

Both accounting and regulatory treatments classify securitizations as a “sale” of assets, therefore allowing the issuer to remove the assets from their books. The purpose of this paper is to present conjectural evidence of recourse activity and bankruptcy treatment that undermine the fundamental concept of true sale.

The authors use investor reactions to firm’s first securitizations to isolate investors’ views of the potential risk transfer.

Investor reactions to firms’ first securitization announcements suggest that investors, themselves, think of the effects of securitizations as more like a financing than an asset sale. Firms securitizing for the first time exhibit negative short-term equity returns and negative long-term operating performance, reactions more similar to financings than asset sales. Additional analysis shows that securitization is also associated with increased systematic risk, suggesting that the rapid growth fueled by securitization is similar to increasing leverage. The effect is more pronounced for banks than non-banks.

This is the first study to have used firms' first securitizations to analyze the nature of risk transfer in securitizations. The results show that off-balance-sheet treatment for securitizations may be inappropriate, given investor perceptions of the nature of potential contingent liabilities.

The purpose of this paper is to examine whether the underserved area requirements for Fannie Mae and Freddie Mac (the government-sponsored enterprises [GSEs]) and the community needs requirements of the Community Reinvestment Act (CRA) contributed to the house price run-up in the USA.

This paper predicts the incidence of “Rebounds”, which indicate that a mortgage had been previously denied, to provide evidence on whether certain regulations caused excessively risky mortgage originations. As a different lender rejected the loan given the interest rate that they were willing to charge and information on the borrower, a higher incidence of Rebounds provides evidence that lenders were more frequently disagreeing about loans. This can indicate differences in regulatory pressure or oversight across lenders.

This paper provides evidence that the GSEs were purchasing fewer Rebounds directly from lenders. However, evidence suggests that indirectly, the securitization market served as a conduit for Rebounds to the GSEs that needed to satisfy regulatory underserved area requirements. The necessity of complying with the CRA was found to increase Rebounds. Among regulators, the Federal Reserve was found to have been particularly associated with Rebounds.

The paper’s contribution comes from linking Rebounds to legislative and regulatory influences. This contributes to the literature on excess credit and fraud, as well as the effect of underserved area requirements and the CRA. Also, this paper adds a new dimension to the literature on securitization, by showing the influence of regulation on the securitization of risky mortgages.

The purpose of this paper is to validate the concern that banks' increasing involvement in securitization activity restrains banks' lending, as well as their degree of risk tolerance. Theoretical frameworks claim that securitization reduces risk, hence decreasing banks' degree of risk aversion. Subsequently, banks would be motivated to increase their percentage of assets devoted to risky activities, which is lending to economic sectors. However, banking statistics dictates that banks' lending is on the decline while banks' securitization activities are on the rise.

The paper refers specifically to the Malaysian Islamic commercial banks and utilizes standard panel data analysis.

Supportive evidence was found that banks' involvement in securitization activity do restrain their lending activity. In addition, banks tend to have a riskier portfolio composition following their involvement in securitization activity. Taken together, this signals that banks' involvement in securitization activity needs to be regulated or restricted since excessive securitization activities could curtail credit and increase risk inherent in banks' lending portfolio.

This study departs from previous literature in the sense that an alternative method is introduced to measure banks' securitization activity.

The purpose of this paper is to illustrate the limitations and potential bias in securitized residential mortgage data and examine the importance of such data issues for typical studies of residential mortgage-backed security (RMBS) market and the financial crisis.

We use trustee data on mortgage characteristics provided by BlackBox Logic – the BBx data – to study the extent to which undisclosed mortgage characteristics distort the available data and impact risk analysis of RMBS collateral pools.

We illustrate that substantial amounts of loan characteristic data in crucial fields like occupancy, property type, loan purpose and FICO are missing from the trustee data. The frequency of missing values is staggering, ranging from just under 9 per cent for property type to 29 per cent for FICO, up to almost 85 per cent for originator name, all variables used in recent studies. The omissions are correlated to some degree with the securitization sponsor and even more dramatically with the identity of the deal trustee.

Analysis of RMBS collateral should be built not on the entirety of mortgage databases, but on stratified samples and should otherwise control for important sponsor and trustee fixed effects.

The revisions for Regulation AB which require loan-level disclosure should be adopted to standardize mortgage disclosure.

This is the first paper that examines selection bias in loan characteristics relied upon for a wide variety of mortgage market research that has substantially affected policy decisions in the post-crisis era.