Article1: Characteristics Of Securitizations That Determine Issuers’ Retention Of The Risks Of The Securitized Assets Critical Thinking Samples
Type of paper: Critical Thinking
Topic: Finance, Wealth, Study, Banking, Investment, Accounting, Education, Asset
The study primary focus is availing evidence that seeks to demonstrate that bank loans that have been securitized and accounted for as sales play a deterministic role in determining the risk that is retained by the lender. In the paper, there is evidence that banks will tend to retain more risk in three situation namely when the loans have been closed and the lender retains the larger contractual interest that has a high concentration on the risk of securitization. Second, the loans that are issued by the lender have higher or lower verifiable risk and when the loans are closed ended and the lender retains the larger contractual loan interest. The intended objectives are attained through testing three hypotheses. In this, the results in deed verify the earlier mention three scenarios. The study goes further to demonstrate contractual irrelevance of securitized loan if the loan securitization is revolving. To address future development, the paper hints that although the study focuses on accounting for the securitization as sales, accounting for securitization as borrowing can still be used.
Article 2: In defense of fair value: Weighing the evidence on earnings management and asset securitizations
The study is a follow up on the Dechow, Myers, and Shakespeare (DMS, 2009) that found that there is a negative relationship between income from securitized activities and non-securitized activities income. Since asset securitization has been a controversial issue and has borne some of the heaviest criticism in the financial crises, the authors of the paper took the initiative to address the role that the concept of fair value plays in earning smoothing. The paper details the manner in which fair value is applicable in asset securitization accounting and offers viable alternatives that may be applicable based on the evidence that is presented in DMS. Moreover, the relevance of their study is contextualized in financial standards thus offering a practical application of their outcome through the attributing the relevance of earning management to accounting standard setting.
Article 3: Are Asset Securitizations Sales or Loans?
In many studies, securitization has been viewed as a form of asset sales. However, in this study, the researchers are set to address whether the earlier mention position, as held in many studies, is true or is asset securitization a form of secured borrowing. The study uses the cross sectional regression technique to test whether the stock market treats liabilities and assets that are held by special purpose entity as liabilities and assets of the sponsor originator. The data analysis carried out in this study reveal that the stock market views the special purpose entity assets and liabilities to be belonging to the sponsor originator. The meaning here is that the benefits and the risks of the securitized assets and liabilities transferred will remain with the sponsor originator as opposed to remaining with the special purpose entity. Furthermore, the market views asset securitization as incomplete risk transfer in both low and high retained interest in sponsor originator.
Article 4: Accounting in and for the Subprime Crisis
The paper is based on several aspects in accounting. However, the most striking are the discussion of the aspects of FAS no. 157s that address fair value, FAS no.140 in relation to accounting for subprime mortgage securitization and consolidation of securitization entities as prescribed under FIN no. 46(R) with special consideration on mortgage foreclosure and modification. Having reviewed various aspects as set out in its objective, the paper asserts that accounting, fair value concept or other concepts, cannot eliminate economic cycle. However, accounting should present to knowledgeable market participants comprehensive financial reports thus making the firm behavior observable thus enabling the participant to mitigate risk exposure due to economic cyclic movements. Therefore, the paper dwells mainly on standards and their application in various aspects as opposed to raising concentrate issues related to the subject matter and the manner in which the standard apply to them.