The Pros and Cons of Securitization
Securitization forces banks to compete with institutional investors and other financial institutions for the business of prime borrowers. In response, banks are beginning to provide borrowers with a range of fee-earning services that facilitate the sale of debt instruments to investors. For example, banks offer borrowers note-issuing or underwriting facilities instead of loans and agree to help borrowers sell their debt instruments to investors as and when needed. Banks may also agree to purchase only the unsold portion of the debt issue. Thus, securitization is moving banks away from performing traditional banking functions, such as extending credit in exchange for periodic interest payments.… Read the rest