- Securitization changes the basic role of financial
intermediaries. Traditionally, financial intermediaries have pooled
funds from investors loaned to firms in their place. -
Securitization has enabled firms to offer these functions in the
form of a security, in which case, the focus shifts to the more
essential function i.e. distributing a financial product. (For
example, in the above case, the bank, being the earlier
intermediary, was eliminated, and instead the services of an
investment banker were sought to distribute a debenture issue.) -
Securitization seeks to eliminate fund based financial
intermediaries for fee based distributors. (In the above example,
the bank was a fund based intermediary, a reservoir of funds,
whereas the investment banker was a fee based intermediary, a
catalyst, a pipeline of funds. Hence, with the increasing trend
towards securitization, the role of fee based financial services
has been brought into the focus.) - In case of a direct loan, the
lending bank was performing several intermediation functions as
noted above. It was distributor, in the sense that it raised its
own finances from a large number of small investors. It was
appraising and assessing the credit risks in extending the
corporate loan, and having extended it, it was managing the same. -
Securitization splits each of these intermediary functions apart,
each to be performed by separate specialized agencies. The
distribution function will be performed by the investment bank,
appraisal function by a credit rating agency, and management
function, possibly by a mutual fund which manages the portfolio of
security investments by the investors. Hence, securitization
replaces fund based services with several fee based services. This
is mainly from
http://www.citeman.com/5298-securitization-capital-markets-structured-financial-and-others/
