Hi, An advantage of securitisation that is outlined in the notes includes the fact that securitisation may be a cheap way of borrowing for banks. I don't really understand this. Is someone able to further explain this please? Thanks,
If the bank is able to parcel up the securities assets (eg mortgages) into securities having the risk and return characteristics that particualrly appeal to investors, then they may be able to sell them at a higher price than if they just issued "standard" (unsecuritised) bonds, secured on the assets of the bank as a whole. For example, it may be that investors may be keen to obtain (indriect) exposure to residential mortgages, rather than simply exposure to all of the bank assets, and so selling bonds securitised on mortgages (and no other aseets else) would be a way to meet the specific needs of investors and so borrow money more cheaply than otherwise.
