What do you mean by the term "securitization" of bank loans and why might a bank choose to securitize some of its loans? Securitization dates back to the late 20th century, when the U.S. Department of Housing and Urban Development created the first modern residential mortgage-backed security. The term securitization refers to the transformation of illiquid and non-marketed assets into liquid and marketable assets, or into securities. It is a product of financial innovation, a tool that aims to shift credit risk from loan originators to other counterparties. Securitization is fundamentally a derivative that allows credit risk to be transferred, traded, insured and assumed by institutions without them actually being the originators of the loans. Financial intermediaries can create more diverse loan offerings through the use of securitization, the creation of marketable assets from non-marketable ones. An example is banks selling off loans from their asset portfolio into marketable securities. A bank can create a pool of mortgage loans and then issue bonds backed by those mortgage loans. Securitization then converts illiquid assets into liquid assets and moves them off the balance sheet. For example, suppose there is a bank and on the asset side of the balance sheet it has a series of loans, that is, it has made loans to other entities who are paying interest on this, instead of keeping the loans on its balance sheet, which requires that the bank has capital and limits to some extent the number of loans it can make because the amount of equity and liabilities we have on the right side of the balance sheet determines how much the bank must own in assets on the left side of the balance sheet. Therefore, the amount of cash is...half of the card.......There are mainly two incentives for banks to apply ABS transactions. First, banks use credit securitization as an alternative financing mode to the issuance of deposits.15 The second reason for the application of asset-backed securities is that they allow banks to transfer both market risks and credit outside the bank. Blythe Masters, the inventor of credit derivatives says he believes CDS were made incorrectly, just as the working poor tend to blame their instruments. Instruments that transfer risk can also increase systemic risk if major counterparties fail to adequately manage their exposures. In April 2010 he told the European Parliament's Committee on Economic and Monetary Affairs that "there are definitely lessons that need to be learned. I as far as I feel that I have learned from that experience and that there are things that I would like to see done otherwise"