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

Which of the following is a primary motivation for a bank to securitise a portfolio of loans?

Banks securitise mainly to raise funding and, where significant risk transfer is achieved, to release regulatory capital by moving assets and their credit risk off the balance sheet. This lets them recycle capital into new lending and diversify funding sources.

  1. ATo increase the loans' credit risk concentration on its balance sheet
  2. BTo obtain funding and potentially release regulatory capital by transferring assets and riskCorrect
  3. CTo avoid the need for any investor disclosure
  4. DTo convert fixed-rate loans into guaranteed risk-free assets

Explanation

Securitisation provides alternative funding and, with significant risk transfer, capital relief. It reduces rather than increases concentration, does not remove disclosure needs, and does not make assets risk-free.

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