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Concept
Structured finance
Summary
Structured finance is a sector of finance — specifically financial law — that manages leverage and risk. Strategies may involve legal and corporate restructuring, off balance sheet accounting, or the use of financial instruments.
Securitization provides $15.6 trillion in financing and funded more than 50% of U.S. household debt last year. Through securitization and structured finance, more families, individuals, and businesses have access to essential credit, seamlessly and at a lower price.
With more than 370 member institutions, the Structured Finance Association (SFA) is the leading trade association for the structured finance industry. SFA’s purpose is to help its members and public policymakers grow credit availability and the real economy in a responsible manner.
ISDA conducted market surveys of its Primary Membership to provide a summary of the notional amount outstanding of interest rate, credit, and equity derivatives, until 2010. The ISDA Margin Survey is also conducted annually to examine the state of collateral use and management among derivatives dealers and end-users. End-User Surveys are also conducted to collect information on usage of privately negotiated derivatives.
Structured finance utilizes securitization to pool assets, creating novel financial instruments to enable better use of available capital or serve as a cheaper source of funding, especially for lower-rated originators
Other uses include alternative funding (ture), reducing credit concentration and for risk transfer and risk management interest rates and liquidity.
Tranching refers to the creation of different classes of securities (typically with different credit ratings) from the same pool of assets. It is an important concept, because it is the system used to create different investment classes for the securities. Tranching allows the cash flow from the underlying asset to be diverted to various investor groups.
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