Holistic medicine needed to revive securitisation

In the immediate aftermath of the crisis, it’s possible that those who identified securitisation as a financing model, rather than loan origination practices, as a principal cause of the crisis were all too ready to charge ahead with a multiplicity of regulatory reforms designed to prevent future crises. They were unprepared to see the broader picture. But with the perspective that often comes with the passage of time, it has now become clear that individual measures that target specific concerns may interact in negative ways, and cause the patient more harm than good.

As a financing technique, securitisation permits banks and other financial institutions to recycle capital, and make credit available to consumers. In the US, where the real-estate finance system has not fully recovered, more than 90% of all new residential mortgage originations are government funded or guaranteed. Private funding alternatives are essential. But actual or proposed US and international regulations are making securitisation’s speedy recovery increasingly difficult.

Originally published in International Financial Law Review in the June 2013 issue.

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