Financial lending instruments that work to mitigate serious risks related to complex assets
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What is Structured Finance?
Structured finance deals with financial lending instruments that work to mitigate serious risks related to complex assets. For most, traditional tools such as mortgages and small loans are sufficient. However, borrowers with greater needs, such as corporations, seek structured finance to deal with complex and unique financial instruments and arrangements to satisfy substantial financial needs.
The term “structured finance” is often used to explain the bundling of receivables, although it is more generally applicable to the offering of a structured system to help borrowers – and lenders – accomplish their end goal. The primary goal is to facilitate financing solutions that don’t involve free cash flow and to address different asset classes across various industries, making less risky products available to clients that need them.
The Matter of Securitization
Securitization is the core of structured finance. It is the method by which those in structured finance create asset pools and ultimately form complex financial instruments that are useful to corporations and investors with special needs.
The specific reasons why securitization is valuable include:
- Alternative funding formats for unique or complicated needs
- Reduction of focus on credit
- Managing risk through liquidity and interest rates
- Efficient use of capital available, to capitalize on the potential for greater earnings or profit
- Less-costly funding options, which may be primarily important for borrowers with a less-than-stellar credit rating
- Transfer of risk away from investors
Examples
For large corporations looking to borrow substantial sums, a collected group of assets and financial transactions may be necessary. There are lending transactions that can’t be done with a traditional financial instrument. Therefore, structured finance comes into play.
Several structured finance products and combinations of products can be used to accomplish the financing needs of large borrowers. Structured finance products include:
Summary
Structured finance and its products are important. It provides the scaffolding and space for major borrowers needing a capital injection or alternative source of financing when other, more traditional borrowing options won’t work.
More Resources
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FAQs
The term “structured finance” is often used to explain the bundling of receivables, although it is more generally applicable to the offering of a structured system to help borrowers – and lenders – accomplish their end goal.
What is an example of a structured finance product? ›
Examples of Structured Finance Products
Along with CDOs and CBOs, collateralized mortgage obligations (CMOs), credit default swaps (CDSs), and hybrid securities, are often used, combining elements of debt and equity securities.
What is structuring in finance? ›
What exactly is structuring? Structuring is when a person deliberately splits a large financial transaction into a series of smaller transactions – with the specific aim of avoiding scrutiny from regulators and law enforcement officials.
What is the difference between corporate finance and structured finance? ›
Corporate Finance is about calculating, forecasting, managing and raising of funds for use by an organisation. It can be for working capital and/or capex investments. This is done through equity and/or debt. Structured Finance is a process of issuing bonds against a pool of loans.
Does structured finance pay well? ›
Structured Finance Salary. $42,000 is the 25th percentile. Salaries below this are outliers. $60,000 is the 75th percentile.
What are the 4 types of structured products? ›
We've bucketed the most popular features of structured products into four objectives: principal protection, income, return structuring, and optionality. The objectives are nonexclusive, meaning a structured product may offer both principal protection and optionality, for example.
What is structured finance in simple terms? ›
The term “structured finance” is often used to explain the bundling of receivables, although it is more generally applicable to the offering of a structured system to help borrowers – and lenders – accomplish their end goal.
Can you go to jail for structuring money? ›
It is a federal felony crime. A person convicted of cash structuring would face substantial fines and up to five years in prison.
What are the best banks for structuring? ›
The Top Banks for Structured Finance
The bulge bracket banks with large Balance Sheets tend to have the strongest groups here. Expect to see JP Morgan, Goldman Sachs, Bank of America, Citi, and Deutsche Bank near the top globally and in the U.S.
How often can I deposit $9000 cash? ›
If your deposits are for the same transaction, they cannot exceed $10,000 per year without reporting. Although the IRS does not regulate how often you can deposit $9,000, separate $9,000 deposits may still be flagged as suspicious transactions and may be reported by your bank.
The main objectives of the Structured Finance team are: - to originate and structure complex financing principally secured by collateral guarantees; - to provide advice on strategy and financing arrangements; - to ensure worldwide coverage in the key sectors of the real economy: aviation, rail, maritime, real estate, ...
Is structured finance considered investment banking? ›
Within an Investment Bank there are multiple product groups. One of these includes the Structured Finance group (“Structured Products”).
Is structured finance the same as securitization? ›
Securitization is a subset of structured finance that allows creditors to monetize certain assets by transferring them to a bankruptcy remote special-purpose vehicle, or SPV, which in turn either borrows from traditional lenders or issues securities backed by those assets.
What are the top banks for structured finance? ›
Diversified Financial Intermediary
- Atlas SP Partners, L.P.
- Bank of America. Founding Member.
- Barclays. Founding Member.
- Citi. Founding Member.
- Deutsche Bank. Founding Member.
- Goldman, Sachs & Co. Founding Member.
- J.P. Morgan Chase & Co. Founding Member.
- Morgan Stanley. Founding Member.
According to the latest research, the global Structured Finance market size was valued at USD 1724586.98 million in 2022 and is expected to expand at a CAGR of 12.47% during the forecast period, reaching USD 3490976.01 million by 2028.
What is a job in structured finance? ›
Structured Finance Specialist Responsibilities
Formulate and implement structured finance transactions, encompassing asset-backed securities (ABS), collateralized loan obligations (CLOs), and mortgage-backed securities (MBS).
What are structural products examples? ›
Structured products are financial instruments whose performance or value is linked to that of an underlying asset, product, or index. These may include market indices, individual or baskets of stocks, bonds, and commodities, currencies, interest rates or a mix of these.
What is an example of a financial structure? ›
Imagine you are embarking on a home renovation project that needs funds to implement your design plans. Your financial structure is analogous to determining the portion of the project cost you will fund with your savings (equity) versus the amount you borrow from the bank (debt).
What is an example of structured trade finance? ›
It typically takes the form of pre–payment financing or pre–export financing, structured around the supply chain and commercial terms of customers, and may use export contracts, trade receivables and collection accounts as collateral.
What is structured finance or structured products? ›
Structured products are pre-packaged investments that normally include assets linked to interest plus one or more derivatives. They are generally tied to an index or basket of securities and are designed to facilitate highly customized risk-return objectives.
