Disclosure, Derecognition and Consolidationof Securitizations*

a transferor or initiator or sponsor) transforming a pool of receivables (typically financial assets like commercial receivables, loans, mortgages, etc. but also insurance contracts, buildings, stocks, etc.) into trading securities (bonds or other) destined to be sold on to investors. By creating an ad hoc Special Purpose Entity (SPE) structure to carry out this operation, the transferor is seeking a new source of funding as well as a different way of managing financial risk. The phenomenon has reached into most if not all sectors of activities: trade, mass distribution, property development and industry, especially the automotive and aeronautics sectors. However, financial institutions (banks, insurance companies, credit establishments, etc.) constitute a special case in point. They use securitization to dynamically manage the assets and liabilities itemized on their balance sheets, and above all to manage their return on equity, after taking regulatory constraints into account. Such structured finance operations, which can be difficult to identify accurately, come in many forms. They can involve traditional securitization operations (ABS asset-backed securities, MBS mortgage-backed securities, CDO collateralized debt obligations, etc.), credit-derivative based synthetic securitizations (CDS, credit spread options, recovery swap, etc.) or hybrids like credit-linked notes, synthetic CDOs, iTraxx, CDO's of CDOs, etc. (Jobst, 2007). Positioned between transferor firms and different investors in the financial markets, securitization vehicles (SPEs) can quickly become filters that retain financial information. This means that they will often provide an incomplete image of risks, costs and modes of evaluation.