Research On The Risk Evading Of Asset Securitization

Asset securitization has been one of the most important fruits of financial innovation since 1970's. But Enron Affair tells that there are huge potential risks in Asset securitization. Enron Affair was not thought to be accidental, because there are so many cases failed in Asset securitization before or after it happened. A lot of Analysis shows that their failure is mostly due to people's improper utilization of the weaknesses of exiting rules and regulations for their own purposes. The practices of asset securitization vary from organization to organization. It is necessary, both in theory and practice, to make efforts on institutional risk management of asset securitization and illustrate superficies of idiographic institutions of different countries in a general meaning. This study would intend to provide a valuable perspective of current asset securitization to relevant people in China by emphasizing on how to avoid risks in risk-remoted institution, cash flow mechanism, prepayment and default from the perspective of institutional economics, re-examine the risk-manage mechanism of asset securitization.This thesis has established a special framework to analyze the risk-remoted institution and its risk defense, that is, the essence of risk-remoted institution is systematical separation aiming at asset's property rights bundle, and the affirmation of true sale is to check up the effect of systematical separation from the perspective of law and accounting. The author makes a general analysis and comparison of the isolation of rights bundle, according to the methods that the lawyer of bankruptcy account used to confirm the true sale on the basis of the discretion, and to three confirmation methods used in accounting such as Risk and Reward Approach, Financial Component Approach and Continuing Involvement Approach. This thesis indicates that the risk of risk-remoted institution is brought from separating halfway asset from asset's property rights bundle in the process of true sale in itself. Thereby the author builds up a general framework for the first time to analyze systematically the risk related to SPVs and true sale, which hasnot been adequately analyzed, especially lacks of systematic analysis. It reveals that the risk is only a variety of forms of the institutional risk of risk-remoted institution. On this basis, the thesis analyzes revocable transaction risk, recharacterisation risk, substantive consolidation risk, commingling risk and SPV bankruptcy risk and their risk management approaches, brings forward common defend measures for risk-remoted institution.The risk allotment in management of cash flow, which is pivotal content in wielding asset securitization, is one of the important approaches in risk management of asset securitization. The thesis explores the mechanisms of management of cash flow and of risk allotment. First, the author studies the congregate mechanism of cash flow and the risk of credit institution. He points out that: 1) the credit environments deeply affect the forming of asset pools, 2) in the society of bad credit environments, the banks have their impetuses to make securitization, and the borrowers have their impetuses to default about the mortgage which have been made securitization, so it causes the default rate to increase and the quality to decrease in the evolution of asset pools. Second, the author researches the mechanism of risk allotment in the process of division of cash flow from a new angle, and also mathematically analyzes the optimal design of the senior/subordinated structure of asset-based securities. At last the author elaborates the structure, cash flow, risk and reward of CDO as an example.This thesis focuses on the prepayment risk and the default risk. It describes the optional character of the behaviors of prepayment and default and their affection to the cash flow of asset securitization, then it analyzes the factors which affect the behavior of prepayment, completely introduces and compares three kinds of analysis models of the prepayment risk and the default risk that are experience model, mathematics model and metric model, provides the method of defense of the prepayment risk.Besides, this thesis empirically analyzes the risk forming and the risk defense in Enron Affair founded on forenamed research methodsand fruits.