Securitization: Lessons Learned and the Road Ahead

A healthy market for securitization can make an important contribution to financial and economic stability by easing credit conditions when they are tight, facilitating balance sheet restructuring, and providing an alternative to the direct subsidization of lending. A recent Working Paper and a presentation on this topic to MCM senior staff generated much interest. This memo outlines a proposal to present MCM's work on securitization in a Staff Discussion Note (SDN), which will shape the Fund's position in this area.The SDN will focus on the financial stability implications arising from securitization markets. Particular emphasis will be placed on a set of policy recommendations designed to preserve the beneficial features of securitization, while mitigating the potential costs—an issue of particular current relevance for some European countries. The SDN will also focus on the current impediments to securitization, including a treatment of regulatory initiatives, the operational infrastructure of securitization markets, and related official sector intervention. Finally, the SDN will point to ways that securitization could be adapted to alleviate credit strains (for example in the euro area) and strengthen credit transmission.