FRM Part II · FRM Exam Part II · Structured Credit Risk
A bank transfers a pool of auto loans to a newly created legal entity that issues notes to investors, with the entity's legal status designed so that the originator's creditors cannot claim the pool's assets if the originator fails. What is this entity commonly called?
The entity is a special purpose vehicle. It is a bankruptcy-remote legal entity that buys the loan pool and issues notes, so the pool is isolated from the originator's creditors if the originator fails.
- ASpecial purpose vehicleCorrect
- BClearing house
- CMutual fund
- DTrustee custodian
Explanation
A special purpose vehicle (SPV) is a bankruptcy-remote entity that buys the assets and issues the securities. This isolates the pool from the originator's insolvency risk. A clearing house novates trades and does not hold securitized pools.
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