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What are repackaged loans?

Updated: 9/15/2023
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12y ago

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Repackaged loans are issued to ensure cross-sectoral consistency in the requirements for financial institutions and remove any potential misalignment of interests between the originators (the companies issuing the financial instrument) and investors in such financial instruments.One of the causes of the present instability in the financial markets is the repackaging of debt securities and the distribution of these investments throughout the financial markets. Whilst the repackaging of debt in itself is not inherently risky the function of passing debt to a third party gives

rise to the hazard that the originator can issue loans knowing that their debt will be repackaged and sold as an asset backed security to a third

party. This removes the credit risk from the issuing organisation and so the originator often has little interest in writing 'good' risks.

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