Securitization, Recourse Uncertainty, and Crash Risk

Asset securitizations have become a prominent type of financial transaction in recent decades. According to the Securities Industry and Financial Markets Association, $3.3 trillion worth of mortgage- and other asset-backed securities were issued in 2006. This number fell to $1.6 trillion in 2008 and rebounded to $2.4 trillion in 2016, compared with $1.5 trillion issuances of corporate debt in 2016. While research documents various benefits from securitization, the complexity and financial reporting opacity of these transactions have raised concern among academics, practitioners, and standard-setters. In particular, given the complex structure and disclosures, market participants have found it difficult to assess … Read more