Re: Defining Securitization

Abstract

This Article fills a gap in commercial finance law. Despite the fact that “securitization” has become enormously important to capital markets–and is sometimes blamed for the financial crisis–we have no agreed understanding of the term. Various regulators and commentators have generated a wide range of definitions, but many are vague or omit crucial elements. Perhaps more surprising, the Dodd-Frank financial services reform–the most aggressive attempt yet to regulate securitization–does not define it at all. How can we regulate something without a shared conception of what it is? In order to develop a more fully considered definition of the term, this Article assesses data on the performance of securitizations, as well as the transaction form’s essential elements (its inputs, structure, and outputs). The definition offered here distinguishes “true” securitizations from other transactions, such as collateralized debt obligations and Enron’s structured financings. While the latter transactions may satisfy many current definitions of (or associated with) securitization, they in fact lack one or more essential elements of true securitizations. Not surprisingly, such transactions largely failed to advance the legitimate social and economic goals of securitization, the most basic of which is to connect the buyers and sellers of capital more effectively than traditional financing methods, such as bank lending or issuing shares of stock.