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The Risks of Financial Institutions$
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Mark Carey and Rene M. Stulz

Print publication date: 2007

Print ISBN-13: 9780226092850

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226092980.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 28 September 2021

Special Purpose Vehicles and Securitization

Special Purpose Vehicles and Securitization

(p.549) 12 Special Purpose Vehicles and Securitization
The Risks of Financial Institutions

Gary B. Gorton

Nicholas S. Souleles

University of Chicago Press

This chapter provides evidence that credit card securitizations do not transfer as much risk as a literal interpretation of such structures might imply. It is argued that the existence of special purpose vehicles (SPVs) depends on implicit contractual arrangements that avoid accounting and regulatory impediments to reducing bankruptcy costs. It outlines the significant features of securitization SPVs. Securitization is a significant and growing phenomenon. The simple model of off-balance sheet financing has the unique ability to find high-quality projects for the bank by making an effort. It is suggested that the risk of a sponsoring firm should impact the risk of the asset-backed securities that are issued by its SPVs. Riskier firms are more likely to securitize though the effect is not always monotonic, depending on the specification. The efficient use of off-balance sheet financing is facilitated by an implicit arrangement, or contractual relations, between sponsoring firms and investors.

Keywords:   credit card securitizations, special purpose vehicles, bankruptcy, off-balance sheet financing, asset-backed securities, sponsoring firms, investors

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