Question 2: What does asset securitization mean?

Generally speaking, asset securitization refers to the securitization of credit assets, including mortgage-backed securitization (ABS) (MBS) and asset-backed securitization (ABS). This is a concept introduced from America.

Specifically, it refers to the process of separating and reorganizing the risk and income elements of assets that lack liquidity but can generate predictable and stable cash flow through certain structural arrangements, and then transforming them into marketable securities in the financial market.

In short, it is to sell assets that can generate stable cash flow to special purpose vehicles (SPV) that specialize in asset securitization business. SPV issues asset-based securities, and uses the funds raised by issuing securities to pay the price of purchasing assets.

Among them, the first party to hold and transfer assets is the institution that needs financing, and the whole process of asset securitization is initiated by it, which is called the "initiating institution". People who buy asset-backed securities are "investors". In the process of asset securitization, in order to reduce the financing cost, in many cases, sponsors often hire credit rating agencies to rate the securities credit.

At the same time, in order to strengthen the credit rating of the issued securities, some credit enhancement measures will be taken, and those who provide credit enhancement measures are called "credit enhancers". After the issuance of securities, a special service organization is often needed to collect the asset income and pay it to investors according to the relevant contracts. This kind of organization is called "server".

In this process, the most important issues are in three aspects:

1) Securities can only be issued with certain asset support, and its future income stream can be expected.

2) That is, the asset owner must sell the asset to SPV, and establish a firewall between the asset and the issuer by establishing a risk isolation mechanism. Even if it goes bankrupt, it will not affect the assets that support the bonds, that is, it will achieve bankruptcy isolation;

3) A risk isolation mechanism must be established to isolate this asset from the assets of SPV, so as to avoid the bankruptcy threat of SPV.

The latter two aspects are the key to asset securitization. Its purpose is to reduce the risk of assets, improve the credit rating of asset-backed securities, reduce financing costs and effectively protect the interests of investors.

The purpose of asset securitization is to realize illiquid assets in advance and solve liquidity risks.