商業(yè)銀行管理Chap009課件

1、Chapter NineRisk Management: Asset-Backed Securities, Loan Sales, Credit Standbys, and Credit DerivativesChapter NineRisk Management: AKey TopicsThe Securitization Process Securitizations Impact and Risks Sales of Loans: Nature and Risks Standby Credits: Pricing and Risks Credit Derivatives and CDOs

2、 Benefits and Risks Key TopicsThe Securitization PIntroductionMany issues such as credit risk and the burden of having to raise new capital to meet the funding needs of your customers and satisfy regulatory standards keep managers busyNew tools such as securitizing loans, selling loans off balance s

3、heets, issuing standby letters of credit, and participating in credit derivative contracts can help with risk management Not only have these tools attempted to control risk more effectively, but they have also opened up new sources of fee incomeAs the great credit crisis of 2007-2009 emerged we also

4、 learned that these new risk-management tools carry significant limitations, including unexpected risks and extreme complexity, that can overwhelm unprepared financial institutions and wreak havoc with the financial systemIntroductionMany issues such aSecuritizing Loans and Other AssetsSecuritizatio

5、n of loans and other assets is a simple idea for raising new fundsRequires a lending institution to set aside a group of income-earning, relatively illiquid assets, such as home mortgages or credit card loans, and to sell relatively liquid securities (financial claims) against those assets in the op

6、en marketIn effect, loans are transformed into publicly traded securitiesThe lender whose loans are securitized is called the originatorThese loans are passed on to an issuer, who is usually designated a special-purpose entity (SPE)The SPE is separated from the originator to help ensure that, if the

7、 originating lender goes bankrupt, this event will not affect the credit status of the pooled loans, supposedly making the pool and its cash flow “bankruptcy remote” Securitizing Loans and Other AEXHIBIT 91 The Heart of the Securitization ProcessEXHIBIT 91 The Heart of the SSecuritizing Loans and Ot

8、her Assets (continued)A credit rating agency rates securities to be sold so that investors have a better idea what the new financial instruments are worthPossible moral hazard problemThe issuer then sells securities in the money and capital markets, often with the aid of a security underwriter (inve

9、stment banker)A trustee is appointed to ensure the issuer fulfills all the requirements of the transfer of loans to the pool and provides all the services promised investorsA servicer (who is often the loan originator) collects payments on the securitized loans and passes those payments along to the

10、 trustee, who ultimately makes sure investors who hold loan-backed securities receive the proper payments on timeInvestors in the securities normally receive added assurance they will be repaid in the form of guarantees against defaultCredit enhancerLiquidity enhancerSecuritizing Loans and Other AEX

11、HIBIT 92 Key Players in the Securitization Process: Cash Flows and Supporting Services That Make the Process Work and Generate Fee IncomeEXHIBIT 92 Key Players in theSecuritizing Loans and Other Assets (continued)The concept of securitization began in the residential mortgage market of the United St

12、atesThree government-sponsored enterprises (GSEs) worked to improve the salability of residential mortgage loansThe Government National Mortgage Association (GNMA, or Ginnie Mae)The Federal National Mortgage Association (FNMA, or Fannie Mae)The Federal Home Loan Mortgage Corporation (FHLMC, or Fredd

13、ie Mac)Unfortunately for Fannie Mae and Freddie Mac the long-range outlook for their growth and survival is questionable due to recent record defaults on many of the home loans they tradedSecuritizing Loans and Other ASecuritizing Loans and Other Assets (continued)Beginning in the 1980s, with the co

14、operation of First Boston Corporation (later a part of Credit Suisse), a major security dealer, Freddie Mac developed a new mortgage-backed instrument in which investors were offered different classes of mortgage-backed securities with different expected payout schedulesThe collateralized mortgage o

15、bligation (CMO) CMOs typically were created through a multistep process in which home mortgage loans are first pooled together, then GNMA-guaranteed securities are issued against the loan pool and ultimately offered to investors around the globeThese securities were placed in a trust account off the

16、 lenders balance sheet and several different classes of CMOs issued as claims against the security pool and the income they were expected to generateSecuritizing Loans and Other ASecuritizing Loans and Other Assets (continued)Each class of CMO known as a tranche promises a different rate of return (

17、coupon) to investors and carries a different risk exposure The different security tranches normally receive the interest payments to which they are entitledThe loan principal payments flow first to security holders in the top (senior) tranche until these top-tier instruments are fully retiredSubsequ

18、ently principal payments then go to investors who purchased securities belonging to the next tranche until all securities in that tranche are also paid out, and so on down the “waterfall” until payments are made to investors in the last and lowest trancheThe “senior” tranches of a CMO generally carr

19、y shorter maturitiesReduces their reinvestment risk exposureAttractive to risk-averse investorsSecuritizing Loans and Other AEXHIBIT 93 The Structure of Collateralized Mortgage Obligations (CMOs)EXHIBIT 93 The Structure of CSecuritizing Loans and Other Assets (continued)Examples of Types of Securiti

20、zed AssetsResidential Mortgages the beginnings of securitizationThe role of GSEs (GNMA, FNMA, FHLMC)Riskier CMOsHome Equity LoansAutomobile Loans Commercial MortgagesSmall Business Administration LoansMobile Home LoansCredit Card ReceivablesTruck LeasesComputer LeasesSecuritizing Loans and Other AEX

21、HIBIT 94 Securitization Activities of FDIC-Insured Depository Institutions, 2010EXHIBIT 94 Securitization ActSecuritizing Loans and Other Assets (continued)Advantages of SecuritizationDiversifies a banks credit risk exposureCreates liquid assets out of illiquid assetsTransforms these assets into new

22、 sources of capitalAllows the bank to hold a more geographically diversified loan portfolioAllows the bank to better manage interest rate riskAllows the bank to generate fee incomeSecuritizing Loans and Other ASecuritizing Loans and Other Assets (continued)Securitization has increased regulators con

23、cerns about the soundness and safety of individual lenders and the financial system, especially in the wake of the 20072009 credit crisisRegulators today are looking closely atThe risk of having to come up with large amounts of liquidity in a hurry to make payments to investors holding asset-backed

24、securities and cover bad loansThe risk of agreeing to serve as an underwriter for asset-backed securities that cannot be soldThe risk of acting as a credit enhancer and underestimating the need for loan-loss reservesThe risk that unqualified trustees will fail to protect investors in asset-backed in

25、strumentsThe risk of loan servicers being unable to satisfactorily monitor loan performance and collect monies owed lenders and investorsSecuritizing Loans and Other ASales of Loans to Raise Funds and Reduce RiskLoan sales are carried out today by financial firms of widely varying sizesAmong the lea

26、ding sellers of these loans are Deutsche Bank, JP Morgan Chase, the Bank of America, and ING Bank of the NetherlandsOnly a minority of U.S. depository institutions report regular and significant asset salesThese are concentrated among residential mortgage credits and other miscellaneous loans extend

27、ed primarily to the household sectorMost loans sold in the open market usually mature within 90 days and may be either new loans or loans that have been on the sellers books for some timeSales of Loans to Raise Funds Sales of Loans to Raise Funds and Reduce Risk (continued)Usually the seller retains

28、 servicing rights on the sold loans, enabling the selling institution to generate fee income by collecting interest and principal payments from borrowers and passing the proceeds along to loan buyersServicing institutions also monitor the performance of borrowers and act on behalf of loan buyers to

29、make sure borrowers are adhering to the terms of their loansMost loans are purchased in million-dollar units by investors that already operate in the loan marketplace and have special knowledge of the debtorSales of Loans to Raise Funds Sales of Loans to Raise Funds and Reduce Risk (continued)Types

30、of Loan SalesParticipation LoansWhen an outside party purchases a loanThey generally have no influence over the loan termsAssignmentsOwnership of the loan is transferred to the buyer of the loanThe buyer has a direct claim against the borrowerLoan StripShort-dated pieces of longer term loans, maturi

31、ng in a few days or weeksTwo of the most popular forms of loan sales are participation loans and assignmentsSales of Loans to Raise Funds EXHIBIT 95 The Impact of Loan SalesEXHIBIT 95 The Impact of LoanEXHIBIT 96 Assets Sold With Recourse and Not Securitized by FDIC-Insured Depository Institutions,

32、2010EXHIBIT 96 Assets Sold With RSales of Loans to Raise Funds and Reduce Risk (continued)Reasons behind Loan SalesWay to rid the bank of lower-yielding assets to make room for higher-yielding assets when interest rates rise Way to increase the marketability and liquidity of assetsWay to eliminate c

33、redit and interest rate riskWay to generate fee incomePurchasing bank can diversify loan portfolio and reduce riskSales of Loans to Raise Funds Sales of Loans to Raise Funds and Reduce Risk (continued) The Risks in Loan Sales Best quality loans are the easiest to sell which may increase volatility o

34、f earnings for the bank which sells the loansLoans purchased from another bank can turn bad just as easily as one from their own bankLoan sales are cyclicalSales of Loans to Raise Funds Standby Credit Letters to Reduce the Risk of Nonpayment or NonperformanceFinancial guaranteesInstruments used to e

35、nhance the credit standing of a borrower to help insure lenders against default and to reduce the borrowers financing costsDesigned to ensure the timely repayment of the principal and interest from a loan even if the borrower goes bankrupt or cannot perform a contractual obligationOne of the most po

36、pular guarantees is the standby letter of credit (SLC)SLCs may includePerformance guaranteesA financial firm guarantees that a project will be completed on timeDefault guaranteesA financial firm pledges the repayment of defaulted notes when borrowers cannot payStandby Credit Letters to ReduStandby C

37、redit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)Key Advantages to Issuing SLCsLetters of credit earn a fee for providing the service (usually around 0.5 percent to 1 percent of the amount of credit involved) They aid a customer, who can usually borrow more cheaply when ar

38、med with the guarantee, without using up the guaranteeing institutions scarce reserves. Such guarantees usually can be issued at relatively low cost because the issuer may already know the financial condition of its standby credit customerThe probability usually is low that the issuer of an SLC will

39、 ever be called upon to payStandby Credit Letters to ReduStandby Credit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)Standbys have become important financial instruments for several reasonsThe spread of direct finance worldwide, with some borrowers selling their securities d

40、irectly to investors rather than going to traditional lendersThe risk of economic fluctuations has led to demand for risk-reducing devicesThe opportunity standbys offer lenders to use their credit evaluation skills to earn additional fee income without the immediate commitment of funds The relativel

41、y low cost of issuing SLCs they carry zero reserve requirements and no insurance feesStandby Credit Letters to ReduStandby Credit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)SLCs contain three essential elementsA commitment from the issuer (often a bank or insurance company

42、 today)An account party (for whom the letter is issued)A beneficiary (usually a lender concerned about the safety of funds committed to the account party)The key feature of SLCs is they are usually not listed on the issuers or the beneficiarys balance sheetThis is because a standby is only a conting

43、ent liabilityIn most cases it will expire unexercisedStandby Credit Letters to ReduEXHIBIT 97 The Nature of a Standby Credit Agreement (SLC)EXHIBIT 97 The Nature of a StStandby Credit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)In effect, the SLC issuer agrees for a fee to

44、take on a risk that, in the absence of the SLC, would be carried fully by the beneficiaryIn general, an account party will seek an SLC if the issuers fee for providing the guarantee is less than the value assigned to the guarantee by the beneficiaryIf P is the price of the standby, NL is the cost of

45、 a nonguaranteed loan, and GL is the cost of a loan backed by a standby guarantee, then a borrower is likely to seek an SLC ifStandby Credit Letters to ReduStandby Credit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)Sources of Risk with SLCsDefault risk of issuing bankBenefi

46、ciary must meet all conditions of letter to receive paymentBankruptcy laws can cause problems for SLCsIssuer faces substantial interest rate and liquidity risksWays to Reduce Risk Exposure of SLCsFrequently renegotiating the terms of any loans extended to customersDiversifying SLCs issued by region

47、and by industrySelling participations in standbys in order to share risk with other lending institutionsStandby Credit Letters to ReduStandby Credit Letters to Reduce the Risk of Nonpayment or Nonperformance (continued)Regulatory Concerns About SLCsBank examiners are working to keep risk exposure un

48、der control leading to new regulatory rulesBanks must apply the same credit standards to SLCs as for loansBanks must count SLCs as loans when assessing risk exposure to a single customerBanks must post capital behind most SLCsStandby Credit Letters to ReduCredit Derivatives: Contracts for Reducing C

49、redit Risk Exposure on the Balance SheetSecuritizing assets, selling loans, and issuing standby credits may possibly reduce not only interest rate risk but also exposure to credit riskHowever, it may be more efficient to reduce credit risk with a somewhat newer financial instrument the credit deriva

50、tiveAn over-the-counter agreement possibly offering protection against loss when default occurs on a loan, bond, or other debt instrument Until the 2007-2009 credit crisis the credit derivatives market was one of the fastest growing in the worldBankers generally lead the credit derivatives market, f

51、ollowed by security dealers, insurers, and managers of hedge fundsCredit Derivatives: Contracts Credit Derivatives: Contracts for Reducing Credit Risk Exposure on the Balance Sheet (continued)Credit SwapsTwo lenders agree to swap a portion of their customers loan paymentsCan help each lender further

52、 spread out their riskVariation is a total return swap, where the dealer guarantees parties a specific rate of returnCredit Derivatives: Contracts EXHIBIT 98 Example of a Credit SwapEXHIBIT 98 Example of a CrediEXHIBIT 99 Example of a Total Return SwapEXHIBIT 99 Example of a TotalCredit Derivatives:

53、 Contracts for Reducing Credit Risk Exposure on the Balance Sheet (continued)Credit Options Guards against losses in the value of a credit asset or helps to offset higher borrowing costs that may occur due to changes in credit ratingsCredit Derivatives: Contracts EXHIBIT 910 Example of a Credit Opti

54、onEXHIBIT 910 Example of a CredCredit Derivatives: Contracts for Reducing Credit Risk Exposure on the Balance Sheet (continued)Credit Default Swaps (CDSs) Aimed at lenders able to handle comparatively limited declines in value, but wanting insurance against serious lossesIn this case a lender may se

55、ek out a dealer willing to write a put option on a portfolio of bonds, loans, or other assetsThere may be a materiality thresholdA minimum amount of loss required before any payment occursCredit default swaps were first developed at JP Morgan (now JP Morgan Chase) in 1995Today more than 90 percent o

56、f all credit derivatives are credit default swapsCredit Derivatives: Contracts EXHIBIT 911 Example of a Credit Default SwapEXHIBIT 911 Example of a CredCredit Derivatives: Contracts for Reducing Credit Risk Exposure on the Balance Sheet (continued)Credit-Linked Notes Fuses together a normal debt ins

57、trument, such as a bond, plus a credit option contract, to give a borrower greater payment flexibilityGrants its issuer the privilege of lowering the amount of loan repayments it must make if some significant factor changesCredit Derivatives: Contracts Credit Derivatives: Contracts for Reducing Cred

58、it Risk Exposure on the Balance Sheet (continued)Collateralized Debt Obligations (CDOs) CDOs may contain pools of high-yield corporate bonds, stock, commercial mortgages, or other financial instruments Notes (claims) of varying grade are sold to investors seeking income from the pooled assetsThe claims sold are divided into tranches similar to those created for the s