Securitization: A Financing Vehicle for All Seasons?

50 Pages Posted: 9 Feb 2017 Last revised: 7 Nov 2017

See all articles by Bonnie Buchanan

Bonnie Buchanan

Surrey Business School, University of Surrey

Date Written: December 15, 2016

Abstract

Securitization is considered to be one of the biggest financial innovations of the last century. It is also regarded as both a catalyst and solution to the 2008 financial crisis. Once a popular method of financing the mortgage and consumer credit markets, aspects of the global securitization market are now struggling to revive. In this paper I discuss the role that ethics played in securitization prior to the 2008 financial crisis and find that it is not an obvious story of moral failures, but rather that it lies in more subtle elements of the financial system. The ethics uncertainty role in the securitization story is one of flawed incentives and the shifting of responsibility for handling risk. The role of securitization and the ethics of risk transfer have rarely been discussed explicitly in the literature. The historical origins of securitization and lessons learned from previous flawed uses of the process are also provided. I also detail the various global institutional reform proposals that have taken place. Moving forward, it is crucial to understand the causes, consequences and ethical implications of securitization in the financial crisis so as to help individuals and managers better assess risk, align incentives and design appropriate policy responses.

Keywords: securitization, asset-backed securities, credit crisis, ethics, finance, finance ethics, corporate responsibility

JEL Classification: A1, F3, G1, G2, G21, G23, G24, G28

Suggested Citation

Buchanan, Bonnie, Securitization: A Financing Vehicle for All Seasons? (December 15, 2016). Bank of Finland Research Discussion Paper No. 31/2016, Available at SSRN: https://ssrn.com/abstract=2914023

Bonnie Buchanan (Contact Author)

Surrey Business School, University of Surrey ( email )

Guildford
Guildford, Surrey GU2 5XH
United Kingdom

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