Copyright © 2004 by Thomson Southwestern All rights reserved. 7-1 Changes with Technology Chapter 7 Securitization Structured Financing Internet Banking

Copyright © 2004 by Thomson Southwestern All rights reserved.

7-1

Changes with Technology Chapter 7

SecuritizationStructured Financing

Internet BankingFinancial Institutions in E-Commerce


7-2

Loan Securitization

How & why did loan securitization start?• Innovation of the 1970s• Role of interest rates• Advantages

Government-Sponsored Enterprises (GSEs)• Government National Mortgage Association• Federal Home Loan Mortgage Corporation• Federal National Mortgage Association

Private Sector Securitization (1977)• Certificate of Automobile Receivables• Certificate of Amortizing Revolving Debts etc.


7-3

Mechanics of Securitization

Structure of a Securitization• Sellers• Buyers• Components◦ Securities pool◦ Certain conditions◦ Sometimes insurance◦ Recourse vs. non-recourse


7-4

Structured Finance Transactions

Special Purpose Entity (SPE) or Special Purpose Vehicle (SPV)

Established separately from originating company

Asset-Backed Commercial PaperUsed as an vehicle for off-balance-sheet lending

Structured Project Finance SecuritizationUsed for large public or capital intensive projects

Catastrophe-Linked SecuritiesCAT bonds


7-5

Loan Sales

Types of Loan Sales• Participation• Assignment• Novation• Debt-to-Debt Swaps (Brady Bonds)

Economic Benefits and Reasons for the Rapid Growth in Loan Sales and Securitization Activities

The Enron Scandal Backlash on Security Activities


7-6

Internet Banks and Other Financial Institutions

How Widespread Are Internet Banks and Other Financial Institutions?

• 50 in 1995

• 14,000 in 2004

• Online Banking Household in the U.S.◦ 300,000 in 1995◦ 28 million in 2002


7-7

Internet Financial Services Used

by Financial ProfessionalsCash management 86 percentInvestments 52 percentForeign exchange 45 percentBank loans 39 percentLetters of credit 32 percentInsurance 31 percentBonds and commercial

paper issuance 29 percentDerivatives/hedging 21 percent


7-8

Internet Opportunities

Strategic Choices for Banks in Using the Internet as a Delivery Channel

The Performance of Pure Play Internet Banks

Advantages and Disadvantages to Customer of Pure Internet Banks


7-9

The Supporting Role of Banks in Business-to-Business E-Commerce

Traditional Bank Facilitation of Business Cash Management

• EDI System

• Automated Clearinghouse System

• Financial EDI


7-10

Banks’ Emerging Role in E-Commerce

Internet Portals or “Supersites”

Identify Verification

Assistance for Small Business Entering into E-Commerce

Facilitating Business-to-Business E-commerce

Issuing Electronic Money and Checks

The Integration of the ATM and Internet Networks


7-11

ATM and Debit and Changes in the Payments System

Rapid Rise of ATM and Debit Use Growth in Recent Years• ATM - Annual growth rate of 15.5 percent

from 1996 to 2002• Debit Card Use increase 42 Percent a year

since 1995

Federal Regulator Concerns• Ownership and operations of Non-banks• Pricing and Charges


7-12

Recent Trends in Technology for Financial Service Firms

Increasing IT Spending

E-commerce

Wireless Banking and Brokerage Services

Documents

Copyright © 2004 by Thomson Southwestern All rights reserved. 7-1 Changes with Technology Chapter 7 Securitization Structured Financing Internet Banking