Asset Securitisation in Germany: Risk Transfer or Legal Transformation?

Abstract

The risks associated with asset securitisations have become the subject of debate since the start of the financial crisis in the summer of 2007. Information asymmetries as well as opportunistic behaviour resulting from an inefficient incentive structure have been identified as causes of the sudden breakdown of the interbank lending market. By looking at the legal reforms in Germany before the outbreak of the financial crisis which aimed at promoting asset securitisations under German law, the legal structure of true sale transactions, as well as emergency measures taken during the financial crisis, this paper will analyse the issues connected with asset securitisation from a different angle. The Legal Theory of Finance regards financial markets as rule-bound systems. Based on the premise that a financial assets value depends on legal vindication, the paper will address the question of whether asset securitisation can be understood as legal transformation instead of as risk transfer. A law-centred approach could help to provide an alternative explanation for the increasing popularity of securitisation transactions before the financial crisis as well as for the absence of any market disciplining effects.