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Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

The pooling and repackaging of similar loans into marketable securities that can be sold to investors.  Many types of loans are currently being securitized:  residential mortgage loans, automobile, and other commercial loans.  Securitization is distinguished from whole loans and loan participations.

Securitization provides a process for improving the liquidity of assets and capital-to-asset ratios while increasing earnings.  Fees obtained through securitization increase a bank's earnings.  Savings in regulatory costs and in economies of scale are also possible.  Securitization can enable banks to reduce credit risks associated with variable-rate loans.

Securitization can result in the deterioration of bank assets because investors require high-quality loans.  The purchaser must usually depend on the originator or some other party for servicing, which can be a disadvantage.


MORRIS, D.  Selling and Securitizing Commercial Bank Assets, 1988.
PAVEL, C.  "Securitization."  Economic Review, 1986.
ROSENTHAL, J., and OCAMPO, J.  Securitization of Credit, 1988.

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