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Securitisation and its Impact on Financial Market Stability

In this paper we aim to establish an intrinsic connection between asset securitisation and financial market stability in the light of altered financial intermediation. After a brief presentation of the nature of securitisation per se, we introduce both theoretical considerations and empirical observations to identify possible sources of systemic risk in loan securitisation. In particular, we focus on asymmetric information and the security design as determined by the tradability of credit risk transfer. We argue that regulatory disregard of these issues does not only destabilise securitisation markets but also induce profound disruptions to mutual payment obligations of financial intermediaries.