Securitization as an alternative funding method

Securitization is the process whereby a financial institution that owns a loan portfolio and is looking at funding them through securitization will pool the assets, recognizing the ownership of the assets through classes of tranches. Generally it is more expensive for a bank to securitize assets against obtaining funds from the wholesale market. The extra cost can the 40 bps and above. Securization does have funding, liqudity, and asset liability management advantages. It increases the liquidity of some assets by creating a secondary market for them. Asset liquidity management is enhanced through transfering the risk of some of the assets to the market. Securitizing futures receivables is very advantageous for banks in countries whose sovereign rating is below investment grade.