Dear,
The main consequence of the Capital scarcity, and main trigger of the economic crisis which has followed the 2008 financial crisis, it is lack of credit.
Credit is the most important capital allocation mechanisms in a modern economy. Quoting Ben Bernanke: “Credit has the ability to build a modern economy, but lack of credit has the ability to destroy it”
That’s the trigger of the current crisis, and the main constraint of the economic model that will emerge from it. As capital scarcity is not a temporary fashion, the financial system will be reshaped for offering alternative and more efficient capital allocation mechanisms.
A particularly relevant one is securitization, which is becoming a popular alternative to the scarce banking credits.
Securitization has been used traditionally for allocating capital supported by many types of assets; mortgages, auto-loans, credit card debt obligations, etc.
But the tendency is to use it with many other assets. Today, we will see how many corporations are securitizing their receivables as a mechanism for financing their operations.
Trading receivables for cash is nothing new, corporations used to sell their receivables, with a discount, to factoring companies (or factoring divisions of banks). Unfortunately, in the current economic environment, the mechanism has become very expensive limiting its use.
On the other hand, replacing factoring with securitization presents difficulties too. Since 2008 financial crisis securitization industry has been seriously damaged, and only in the last months has experienced some recovery (influenced by the low interest rate policies of the last years).
For details, I recommend you to read the following paper of the OECD.
As the low interest rates policy is not sustainable in the long term, new regulation is being proposed and implemented in order of making securitization more attractive to potential investors.
For details, it’s very recommendable the following report of the Bank for International Settlements.
For those of you, who don’t have the time to read the above documents, let me give you a brief conclusion.
Securitization industry is requiring a more stringent regulation and higher levels of disclosure and transparency for playing its role in the new environment of capital scarcity and limited economic growth.
That’s exactly what we can offer with Bank Analyzer; a robust technology framework for fulfilling the new regulatory requirements of the securitization industry.
As corporations use securitization will be required to comply with the regulatory framework of the industry, and software capable of fulfilling the regulatory reporting will be required.
The main difficulty is integrating non-banking sales and invoicing processes into the Bank Analyzer architecture.
We already saw in previous posts that Bank Analyzer can be used by non-financial companies.
In a future post we’ll see how to integrate sales invoices in Bank Analyzer, so we’ll have all the necessary data for utilizing the system functionalities for supporting securitization requirements.
At this point, let me remind you that the challenges of the capital scarcity are not limited to the financial system, but they impact the whole economy. As a consequence, the whole economic system that will emerge from this crisis will be driven by the efficiency paradigm.
Looking forward to read your opinions.
K. Regards,
Ferran.
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