Securitization and Risk Transfer

Abstract

The role that financial institutions and corporations should play in the global economic and political framework has been widely debated since the financial crisis. In 2009, at a meeting of UK bankers and clergy, Mark Costa, Chairman of Lazard International, stated, “Capitalism has slipped its moral moorings.”1 Five years later, Mark Carney, the Governor of the Bank of England, stated, “…just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself” (Longley 2014). An examination of ethical lapses is inevitable in the aftermath of any financial crisis. Aspects of the 2007 financial crisis may be characterized by greed, recklessness, and dishonesty, but it may also be described as the result of good intentions gone amiss (Tett 2009; FCIC Report 2011). Scalet and Kelly (2012), Donaldson (2012), and Graafland and van de Ven (2011) have examined moral and ethical issues that emerged from the recent credit crisis. Securitization has been attributed to be one channel that facilitated the amplification of systemic risk by increasing excessive leverage and risk concentration across the financial sector.