Introduction

The process of financial innovation that has characterised the international banking system in recent years has led to a rapid transformation of the domain of banks' activity. The creation of new financial instruments has brought the development of new markets and the expansion of the potential operations available to the banking system. The introduction of these new securities has changed the way in which traditional lending is performed, and it has induced banks to engage in extensive off-balance sheet activities. An important component of this process is the so called ‘securitisation’.

Securitisation can be broadly defined as the process of originating and selling loans to outside investors. This definition includes two leading forms of securitising loans. The first is more traditional, and it involves the sale of an existing loan to outside investors, either in its entirety or in smaller fractions. This form of securitisation has involved substantially two types of loans. It has first concerned the sale of large commercial and industrial loans, a process that has increased especially in recent years. A second category of loans which have been subject to extensive secondary trade is formed by LDC loans, especially in connection to the process of restructuring the liabilities of some heavily indebted countries. Loans may be sold to outside investors in many different forms. They can be sold as a unique lot to a single acquirer, or can be fragmented in loan participations.