Credit card securitization

The flexibility of securitization is a key advantage for both issuers and investors. Financial-engineering techniques employed by investment banks today enable bonds to be created from any type of cash flow. The most typical such flows are those generated by high-volume loans such as residential mortgages and car and credit card loans, which are recorded as assets on bank or financial-house balance sheets. In a securitization, the loan assets are packaged together, and their interest payments are used to service the new bond issue. 

Securitization also enables an instimtion to access debt markets its credit rating would otherwise be too low for. The growth in the United States of the credit card banks, such as MBNA International, would have been severely restricted if these firms had not had a market for their securitized debt. 

The driving force behind securitization has been the need for banks to realize value from the assets on their balance sheet. Typically, these assets are residential mortgages, corporate loans, and retail loans such as credit card debt. Let us consider the factors that might lead a financial institution to securitize a part of its balance sheet. These might be for the following reasons ... 

Since 1991, the stand-alone trust has been replaced with a master trust as the preferred structuring vehicle for credit card ABS. The master trust structure allows an issuer to sell multiple issues from a single trust and from a single, albeit changing, pool of receivables. Each series can draw on the cash flows from the entire pool of securitized assets with income allocated... 

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