Legal Analysis On The Model Of Non-performing Assets Backed Securities Of Bank

Non-performing assets has long been a problem harassing china's asset market. How to handle non-performing assets effectively is an issue confronting the financial industry of china. The existing schemas of dissolution of non-performing assets in general could not solve the essential problem. For example, fluidity of non-performing assets of band could not be satisfactorily realized. However, as an innovative financial tool, asset backed securities could dispose the non-performing assets effectively. The bank sells the non performing assets or assets group which are lacking in fluidity but productive of the prospective stable cash flow to SPV. Then via certain structural arrangement, the bank could partition and re-group the profits of assets and strengthen their credit, transforming into freely circulated securities trusted by cash flow created by assets, and then sell them to the investors in the financial market. By way of "true sell", the bank could eliminate the non-performing assets; and through SPV, the risks of going bankruptcy could be insulated between the bank and SPV. Some countries like U.S.A. have witnessed the success of disposing non performing assets through asset backed securities. In view of this fact, asset backed securities is the optimum choice for our country to dissolve non-performing assets in the banks. This thesis adopts the methods of comparative analysis and other analysis, introduces the common process and legal problem of asset backed securities as well as the successful experience of non-performing assets backed securities in countries like America, Japan and Korea. Taking into consideration the legislative situation in our country, the author conducts his analysis and discussion in the legal level concerning the non-performing assets backed securities under the model of trust in China. There are altogether four chapters. Chapter 1 introduces the common process and legal problem of assets backed securities. The author briefs the concept of asset backed securities and common process as well as the analysis of major legal problems, laying a theoretical foundation for the parts that follow. Chapter 2 summarizes the conditions of non-performing assets in banks around China. The existing non performing assets disposal schemas are introduced and appraised briefly as well. The author testifies the feasibility and the superiority of non-performing assets backed securities. Chapter 3 introduces the successful experience of non-performing assets disposal in America, Japan and Korea by way of assets backed securities. Based on these, thesignificance for us to borrow this method is summarized. Moreover, some existing examples of non performing assets backed securities in banks in China are also listed. The fourth chapter is the core of this thesis. Though the model of non performing assets backed securities could have various kinds of options, the author, through comparative analysis, believes trust is the best one considering the legislative situation in our country. The independent nature of trust enables SPV a supreme capacity of bankruptcy-insulation. Through the grouping of securities, SPT(Special purpose trust) also excels itself, compared to other Credit enhancements. Furthermore, trust could avoid double taxation. Last but not the least, trust is in the strength of saving transaction fees and providing professional technical support. Needless to say, the trust model is still confronted with some legal headaches. For instance, trust authorization certificate still has not won full legal recognition; the certificate could not circulate effectively. All these problems are to be solved. At the same time, the author puts forward some suggestions, mainly legal ones, on non-performing assets backed securities of bank in the model of trust.