…perhaps the most important reason why the Spanish financial system is
unlikely to suffer a meltdown is the virtual absence of Special
Investment Vehicles (SIV) and conduits. These animals allow banks to
move mortgage-backed securities off their balance sheets, thus
obscuring the exposure of individual institutions and escaping capital
requirements.
There is much more here. Note also that Spanish originators keep a share of each mortgage they securitize. In case you didn’t know it, Spain too has had a bursting of its real estate bubble, although so far they have not had comparable troubles with their banks.
I hope our regulators are watching Spain closely to see if any ideas can be adapted. Despite everything, securitization is here to stay, so insisting that originators have some skin in the game is a good first step.
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