A Study on Asset Securitization and Its Risk Prevention

Asset securitization was first launched in the U.S. in late 1970s. It was once considered the greatest financial innovation of the twentieth century, which enjoyed the advantages of lowering financing costs, broadening financing sources, diversifying investment risk and increasing asset liquidity. However, it was also asset securitization that caused the U.S. subprime mortgage crisis in 2007. The field began to focus on the risks of asset securitization after the crisis.

The following thesis gives a brief introduction of some basic theories of asset securitization first, including the participants, operation and advantages of asset securitization. Then both its macro and micro risks are discussed in details. The thesis also illustrates risks of asset securitization exposed by the U.S. subprime mortgage loan crisis. Based on theory and practice, conclusions are made that: (1) Asset securitization is a financial innovation with both advantages and disadvantages; (2) To ensure the healthy development of asset securitization, government agencies and financial intermediaries should take the supervision responsibility; (3) Efforts should be make to further develop domestic asset securitization market.

1 Introduction

1.1 Research Background and Purpose

1.1.1 Research Background

Up to nowadays, there is almost no financial innovation has received more praise and abuse than asset securitization. Launched first in the United States in 1970s, asset securitization was once the most valuable financial innovation of the twentieth century, which can benefit the financial market by providing more financing sources, lowering investment costs, diversifying investment risk and increasing liquidity of assets. However, asset securitization system is not free of flaws. It is asset securitization, especially mortgage backed securities that directly contributed to the