easy · Asset-Backed Securities
A bank enters into a 'Synthetic Securitization' (Significant Risk Transfer) on a corporate loan portfolio. Instead of selling the loans, it buys a Credit Default Swap (CDS) from an SPE.
What is the primary motivation for this structure?
- To achieve regulatory capital relief while keeping the client relationships and loans on the balance sheet.
- To avoid the 'True Sale' requirement that the SEC formally mandates for all bank loan securitizations.
- To increase the bank's total reported interest income by charging the SPE investors an ongoing risk premium fee.
- To hide the identity of the underlying corporate borrowers from both the bank's own internal and external auditors.
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