Pooling loans or other assets and selling claims on their cash flows to investors in tranches. It moves credit risk away from the originator.
Where you will meet it
Securitisation comes up in 17 learning outcome notes across the FRM syllabus.
A few of them:
Banks FRM Part I · Financial markets and products
“They also include less transparency about the underlying credit quality, dependence on rating agencies and on securitisation markets staying open, and implicit support, where the bank has to take assets back in a crisis.”
Credit Risk Transfer Mechanisms FRM Part I · Foundations of risk management
“Securitization pools loans and sells claims on the pool's cash flows.”
Fundamentals of Credit Risk FRM Part II · Credit risk measurement and management
“Tools include limits on single names and sectors, diversification, collateral, netting, pricing, credit derivatives and securitisation.”
Liquidity Risk FRM Part II · Liquidity and treasury risk measurement and management
“Northern Rock, the UK mortgage lender, financed long assets with wholesale and securitisation funding that closed in 2007, and a retail run followed.”
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