Selected Papers of The Jurist (法学家), Volume 1
- Renmin Chinese Law Review: Selected Papers of The Jurist
Edited by Jichun Shi
Chapter 10: Information supervision: the optimum choice of China’s supervision of credit assets securitization
Credit asset securitization is a financing method for issuing securities backed by assets with credit enhancements. These may be assets that lack liquidity, but have stable future cash flows. Securitization is the process by which a company packages its illiquid assets as a security. For example, when a company makes an initial public offering, it effectively packages the company’s ownership into a certain number of stock certificates. Securities are backed by an asset, such as equity, or debt, for example a portion of a mortgage. Securitization allows a company access to greater funding to expand its operations or investments, or for some other reason. Securitization typically is the process of pooling various types of debt – mortgages, car loans, or credit card debt, for example – and packaging that debt as bonds, pass-through securities, or collateralized mortgage obligations (CMOs), which are sold to investors. The principal and interest on the debt underlying the security is paid to the investors on a regular basis, though the method varies based on the type of security. Debts backed by mortgages are known as mortgage-backed securities, while those backed by other types of loans are known as asset-backed securities.
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