Protecting investors through ‘skin in the game’

Key facts about securitisation in Australia:

  • The seller (originator) of an asset backed security must have ‘skin in the game’,
  • The originators in Australia are major banks and Authorised Deposit-taking Institutions (ADIs),
  • Securities can be backed by mortgages, credit cards, personal loans, or auto loans,
  • In the event of default, the originator takes losses before the security holder,
  • These securities generally attract a yield premium of up to 100 basis points over comparable corporate bonds,
  • Losses in the USA pre-GFC peaked at ~12% due to fraud and poor lending practices. In Australia, long-term losses average less than a quarter of a percent,
  • Due to the credit protections, no bond holder has ever incurred a loss in Australia.