Comparative study of the technique of securitization France and the United States: reference to the securitization of the residential real loans
- Presentation of the sector and the company
- Introduction of L'Oréal
- Creating a company
- The core of the group L'Oreal
- Methods of evaluation
- The valuation models
- The choice of model for the company studied
- Presentation of the employee stock option
- The characteristics of the plan
- The determination of assumptions
- The evaluation process of the Employee Stock Option
For several years, the international financial system has been undergoing profound changes. The markets have undergone a revolution, and these changes are mainly triggered by two major phenomena, namely the new technologies and deregulation. Under the effect of these two combined forces, we are witnessing an explosion in the financial sphere, the emergence of new activities and new financial instruments. Commercial banks are therefore forced to follow suit by creating new financial innovations sometimes by engaging in high-risk operations. Securitization is the transformation of certain debts listed in liquid bank assets in liquid securities and fits into the overall process of disintermediation and financial innovation. With securitization, credit institutions have a management tool that allows their active risk reduction in the balance sheet.
The transfer of receivables from customers involves the transfer of the main risks to the investor and attaches the possession of a credit (default risk, liquidity risk and interest rate). Securitization encourages outsourcing risk to the market where the investors bear most risks of the securitized loans.
Securitization allows optimizing the structure of credit institutions' balance sheets by reducing risk; it increases competitiveness and achieves greater profitability. This article is a study and research on the concept of securitization as a comprehensive outline of this technique. It will undertake a comparative study between France and the United States. At first there will be a discussion on its genesis following the housing crisis in the United States. Then a description on its foundations and mechanisms established by the conventional method and synthetic framework. A final section will examine the application of this technique to residential mortgages in France.
Understanding the basic mechanisms of securitization involves the recollection of its history. Indeed, the presentation of the origins of this process of financial engineering and the context in which it has developed will help to understand this technique and describe the role of the organs used for this operation.
Securitization was first set up in the United States under the leadership of federal agencies. The mechanism and securitization methods have been developed over time in light of developments in the financial sphere, as this technique has many advantages in terms of risk management and funding diversification.
Securitization is a form of credit financing of the most advanced of modern finance. To understand this technique requires the need to consider the American model as a reference. Securitization has emerged in the United States in the 1970s, when it was re-financing and the property was unsuitable because of high interest rates and the cap on deposit rates, which was designed to the gap in balance of payments and avoid capital flight. The development of securitization in the U.S. was not immediate, this technique has benefited as an enabling legal and financial frame work sometimes called liberal, born as a result of the crisis in housing finance.
One reason for the development of securitization in the U.S. is based on the existence of a form of financing called "Structured Financing" which is to loan a debt to a financial asset. The "Structured Financing" have experienced rapid changes due to changes in the regulatory and financial landscape of America.
Tags: Concept of securitization; Development of securitization in USA; comparative study of securitization between USA and France