Loan Sales & Securitization

This lecture covers the process of moving risks off-balance-sheet through loan sales and securitization, focusing on lending risks, loan pricing, credit rationing, relationship banking, and loan restructuring. It delves into different risks associated with loans, such as credit, interest rate, borrower repayment, liquidity, and prepayment risks. The lecture also discusses the rationale for loan sales, the US secondary loan market, and the securitization process, including the basic idea, securitization chain, cash flows, legal structure, and benefits. Furthermore, it explores the limitations of securitization, risks to investors, and the role of asymmetric information in adverse selection and moral hazard.