How do Financial Institutions in China Mitigate Risks in Securitization Markets?

Abstract

Asset securitization as the essential financial tool has increased the liquidity of underlying assets and promoted rapid economic development. In 2008, the outbreak of Subprime Mortgage Crisis that brought by the collapse of securitization triggered the U.S. securitization market to realize the risks involved in structured financial products, and thus facilitated the development of risk controlling tools. Through the analysis of securitization process, drivers, and credit rating agencies, the study concentrates on the formation of risks and modeling evaluation with evidence in both China and the U.S. markets. Statistical analysis was conducted on Chinese securitized products combining with risk management models built in the U.S. market. The results not only show risk evaluation tools that could improve the market maturity but also reveals the lack of information disclosure in China with the limited access to historical data. The paper attempts to address policy recommendations on mitigating potential risks and promoting financial developments in the China securitization market