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FRM Part II · FRM Exam Part II · An Introduction to Securitisation

A bank sells a pool of auto loans to an SPV for cash, with no recourse, and the transfer qualifies for a clean sale. Which is the most direct benefit to the bank?

The bank benefits by removing the loans and their capital requirement from its balance sheet and receiving cash to fund new lending. This holds because the sale is true and non-recourse, so credit risk passes to the SPV and its investors.

  1. AIt can remove the assets and their associated regulatory capital requirement, freeing capital and fundingCorrect
  2. BIt retains all the credit risk but gains tax benefits
  3. CIt increases the bank's on-balance-sheet loan concentration
  4. DIt becomes the primary obligor on the notes issued

Explanation

A true sale moves the assets off the balance sheet, so the associated risk-weighted assets and capital are released and cash funds new lending. Retaining all risk, increased concentration or being obligor on the notes are not benefits of a clean sale.

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