Structured products

This overview is a guide to the Banking & Finance content within the Structured Products subtopic, with links to appropriate materials.

Structured finance is a term used to cover a range of types of financing techniques used by a holder of assets to transfer risk from the assets using methods of financial structuring. Typically, a combination of derivatives and securities is used to achieve this. The Bank of International Settlements identifies three elements of structured finance:

  1. pooling assets owned by the holder

  2. tranching (ie division into tiered levels) issued bonds, which are backed (ie secured) by the asset pool

  3. de-linking (ie removal) the credit risk of the pool of assets from the credit risk of the holder of the assets

There is a large variety of structures that can be used to bring about this result and the method used will be dictated by the type of asset and the type of holder.

The most significant holders of assets will typically be banks—commercial banks use their capital to extend loans to various borrowers and these loans are held on the relevant bank's balance sheet.

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ISDA and FIA respond to CPMI-IOSCO consultation on FMI general business losses

The International Swaps and Derivatives Association (ISDA) and Futures Industry Association (FIA) have submitted a joint response to the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) consultation on the management of general business risks and general business losses by financial market infrastructures (FMIs). The associations supported the principle that infrastructures should maintain sufficient resources to absorb losses for which they are solely responsible, as these losses arise from risks within their control and should not be allocated to participants. They welcomed a more prescriptive approach, noting that previous international assessments identified significant inconsistencies and gaps in existing practices. ISDA and FIA called for clearer and more consistent standards for identifying loss scenarios, determining the size of liquid net assets funded by equity, and setting expectations for transparency, governance and stakeholder engagement. They recommended increasing the minimum equity-funded resource requirement beyond six months of operating expenses, adopting common scenario standards across infrastructures, improving disclosure of risk management assumptions and available resources, and conducting post-guidance assessments to support global convergence. The associations also reiterated their opposition to the use of variation margin gains haircutting to cover general business losses, citing its misalignment with the nature of such losses and its potential to undermine market stability.

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