Home
Sovereign Financing
Project Financing
Venture Capital
Financial Management
Consulting
Glossary
Agr. between Underwr.
Arbitrage
Asset-backed Com. P.
Asset-backed Securities
Back Office
Banker's Acceptance
Bank Notes
BIS
BHC
Bancruptcy Entity
Bank Trust Dep.
Bill
Bond
Book Entry Securities
Capital Markets
Cash Equivalents
CHIPS
Clearance
Contingent Liability
CLOs
Credit - Loan
Credit Default Swaps
Credit Enhancement
Credit Facility
Credit Line
Custodian
Debenture
Derivatives
DVP
Depository Trust Comp.
Discreet Funding
Distributing Syndicate
Edge Act
Eligible Paper
ERISA
EUROCLEAR
Eurobond
Euro-MTN
Euro Dollar
Exempt Securities
Factoring
Fedwire
Forfaiting
Group Sales
Guarantee
Hurdle Rate
High-Grade Bond
IDB
IBF's
IBRD
ICC
IMF
In (Cost)
Ineligible Securities
Issuing Agent
L/C
LDC
Leverage
Liquidity Facility
LIBOR
Loan
Managing Underwriter
Markdown
MTN
Merchant Bank
Money Center Bank
Money Market
Negotiable Instrument
Negotiated Underwriting
Nominee
NIF
Off balance sheet Fin.
OTC
Overcollateralization
Oversubscribed
Paper Dealer
PVD
Presold Issue
Primary Distribution
Primary Market
Prime Paper
Private Placement
Rediscount
Regulation T
Remote Orig. Conduit
Repo
Retention
Reverse Inquiry
RUF
Riskless Transaction
Riskless Principal
Rule 144
Rule 415
SBLC
SDFS
SDR
Secondary Market
Security Depository
Sec. Mark. Credit Act.
Secured Dept
Securitizations
Selling Group
Senior Dept
Short Term Dept
SPE
Spread Account
Spread (Underwriting)
Structured Note
SWIFT
TELEX
Test Keys
Trade for trade
Underwriter (securities)
Underwriting Agreem.
Underwriting Group
Underwriting Spread
Philanthropy
Links
Guestbook
Member Area
Legal Disclaimer
Contact
Impressum


A number of larger banks have started using a new structure, a "special-purpose entity," (SPE) which is designed to acquire trade receivables and commercial loans from high-quality (often investment-grade) obligors and to fund those loans by issuing (asset-backed) commercial paper that is to be repaid from the cash flow of the receivables. Capital is contributed to the SPE by the originating bank which, together with the high quality of the underlying borrowers, is sufficient to allow the SPE to receive a high credit rating. The net result is that the SPE’s cost of funding can be at or below that of the originating bank itself. The SPE is "owned" by individuals who are not formally affiliated with the bank, although the degree of separation is typically minimal. These securitization programs enable banks to arrange short-term financing support for their customers without having to extend credit directly. This structure provides borrowers with an alternative source of funding and allows banks to earn fee income for managing the programs. As the asset-backed commercial paper structure has developed, it has been used to finance a wide variety of underlying loans--in some cases, loans purchased from other firms rather than originated by the bank itself--and as a "remote origination" vehicle from which loans can be made directly. Like other securitization techniques, this structure allows banks to meet their customers’ credit needs while incurring lower capital requirements and a smaller balance-sheet than if it had made the loans directly. Asset-backed commercial paper programs typically have several layers of credit enhancement cushioning the commercial paper purchaser from potential loss. (Federal Reserve-Trading and Capital-Markets Activities Manual)