Restarting Asset-Backed Securities and Current Developments in the Securitization of Financial Assets: The Case of the European Market

Abstract

Since the inception of the 2007-2008 financial crisis, there has been increased interest on how to restart the Asset-Backed Securities (ABS) market especially in Europe. The crisis exposed several shortcomings in the securitization process which include inadequate due diligence on the part of investors, conflicts of interest and misaligned incentives among participants along the securitization chain, overreliance on rating agency risk models, and lack of transparency regarding collateral and deal structures. This paper therefore provides an insight into how ABS will be conducted in Europe after the recent financial crisis and highlights the current developments in the securitization of financial assets. The paper examined how the financial crisis of 2007-2008 has reshaped the business of ABS using data from the Association of Financial Markets in Europe (AFME) and European Securitization Forum (ESF) quarterly reports. A hypothesis was formulated and four research questions were answered with the help of secondary data. The hypothesis was tested using the student t-distribution and subjected to regression analysis. The data was analyzed with the use of Excel Analysis Toolpak and Pivot tables and charts. The results obtained showed that the financial crisis had a minimal impact on reshaping the ABS market. It was also observed that, ABS business after the crisis has mainly been reshaped by regulatory reforms.

Keywords: Securitization, Asset-Backed Securities, Financial Assets, Financial Crisis, European Market.