AssetSecuritizationinChina
Abstract
Asset Securitization is one of the most important financial innovations in the international finance field in recent several decades. It breaks the current law, accounting and tax regulations through its wonderful contract arrangement, inducing a mew financial technique to the finance market.
This paper tries to introduce the structure and operation process of Asset Securitization. Based on the background information, the benefits to the major parties are discussed. The application of Asset Securitization in China is the main focus of this paper. After investigating the significance of developing asset securitization in China and its present status, the obstacles in current legal system are analyzed together with the proposals to solve them. Finally, the paper investigates the US model and Japanese model to propose a two-tiered asset securitization model for China.
Keywords: asset securitization
1. Background
Brief history
Asset securitization originally developed in the common law legal environment of the United States. The first structured financings, identified as asset securitization, started in the early 1970s with the securitization of pools of mortgages. For decades before that, banks were essentially portfolio lenders; they have to held loans until they matured or were paid off. These loans to borrowers were mainly from the deposits and sometimes from debts, which was a direct obligation of the bank.
Mortgage-backed securities are the precursor to modern asset-backed securities. The Federal National Mortgage Association was established in 1938 to provide a secondary market for government guaranteed mortgages. A secondary market in the trading of mortgage securities enhances the liquidity in the mortgage financing markets during the infancy of the U.S residential mortgage industry . As the demand for housing credit increased after the Second World War, the depository institutions simply could not meet the demand, and alternative capital streams were needed to finance the growing housing industry. To meet the market requirement, banks and other financial intermediaries sought ways of increasing the sources of mortgage funding. In 1957, the Federal Home Loan Bank Board created a credit reserve system for savings and loan associations by permitting the purchase and sale of participations in interests in mortgage loans .
In the 1970s, under the auspices of the Federal Home Loan Mortgage Association, the Federal National Mortgage Association, and the Government National Mortgage Association, the mortgage-backed securities explosively grew in the secondary market . The structures and process of the mortgage-backed securities were subsequently transferred to other types of loans. Since the mid 1980’s better technique and more sophisticated investors have combined to make asset securitization one of the fastest growing activities in the capital markets. In recent years, many different types of assets have bee