True Sale Securitization in Germany and China

True Sale Securitization in Germany and China

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Inhaltsangabe:Abstract: The Master thesis for LL.M. at Goethe university s ILF titled True Sale Securitization in Germany and China is a comparative study about true sale securitization. The initial reason for a comparative study was the similarity of banking centred financial systems in these two countries. Another reason is connected with the True Sale Initiative (TSI), a plan composed by major German banks aiming at improving their financial situation. German banks start to be plagued by the non-performing loans (NPLs) since 2001 due to mediocre performance of German corporations and depreciation of banks investment to the east part during 1990s. Facing the competitions from other countries and under pressures from the International Convergence of Capital Measurement and Capital Standards: a Revised Framework (Basel II) issued by the Basel Committee on Banking and Supervisory Practice (Basel Committee) at the Bank for International Settlements, the German banks employed the TSI as one part of the bigger financial reform to regain competition in Europe and worldwide. December 2004, the first true sale securitization was successfully constructed in Germany after German federal government changed some of its formerly unfriendly legal, taxation and accounting rules. The German experiences with TSI can shed some light into how China to develop its asset-backed securities (ABS) market in order to save its heavy NPLs-burdened banks and find alternative funds for its corporations. Although securitization might be a possible solution, the Chinese current legal system and market infrastructure prevents it from fully utilizing this modern financing technique. What China can learn from Germany s experiences is, that a special securitization law is preferred to amending each relevant laws and rules in order to get rid of legal barriers and contradictions for true sale securitizations. In addition, strong governmental supports will facilitate and accelerate the process of true sale securitization market development. The similarities between the German and Chinese financial system is the main incentive for this study. Both Germany and China have a financial system that is dominated by banks and at the same time features a weak capital market. Banks are the main external financing sources for domestic corporations. Furthermore, in both countries banks are suffering losses and carrying burden of non-performing loans (NPLs), due to the bad performance of domestic corporations (China has been suffering a huge amount of NPLs, whereas Germany just started to have this problem since 2001). Banks in both countries are also facing cutthroat international competition and have motivations to improve their competitiveness. By analyzing the legal obstacles that lie in the true sale securitization transactions in Germany, as well as the pros and cons of its True Sale Initiative plan, I will argue that China is not yet prepared for capital market orientated financial systems like the U.S. and the U.K. There are no developed concepts and legal frameworks for corporate governance, shareholders rights and management fiduciary, and currently banks are still the main external sources for corporate financing. China should learn from Germany s experiences to strengthen its banking sector, since both countries have similar problems in how to improve banks profitability and competitiveness. From Germany s recent experiences in true sale securitization I will shed some light on what China needs to do in order to utilize securitization for Chinese banks. China is under huge pressures to open its financial market to foreign banks, according to China s commitments to the World Trade Organization (WTO), and upholding a competitive domestic banking structure is of equal importance in both Germany and China. The questions I will tackle in this thesis are: Does true sale securitization have advantages over synthetic securitizations in financing? Which is preferred: a special true sale securitization law or revisions of relevant laws? Does China need to develop a true sale securitization market, and how? In section 2 I will introduce definitions, theories and categories of securitization, as grounding in historical development and theories of financial innovation is valuable for later assessments. In section 3, I will describe the application of securitization in Germany, in particular how true sale securitization works in the German legal context, as well as the True Sale Initiative and recent development. The fourth section gives an introduction of the Chinese banking system and legal system, and analyzes legal barriers for carrying out securitization transactions in China. I will then conclude by linking the experiences of Germany with potential for the Chinese market to embrace true sale securitization. Table of Contents: List of Abbreviations6 1.Introduction9 2.Securitization12 2.1Definition12 2.2Market Development14 2.3Main Market Player16 2.4Classifications of Securitization19 2.4.1Classification According to Asset Types19 2.4.2Pass-Through and Pay-Through Securitization19 2.4.3Classification According to Special Purpose Entity Types20 2.4.4Asset-Backed Securities and Asset-Backed Commercial Papers21 2.5True sale Securitization and Synthetic Securitization22 2.5.1True Sale Securitization22 2.5.2Synthetic Securitization23 2.5.3Main Differences Between True Sale Securitization and Synthetic Securitization24 2.6Pros and Cons of Securitization26 3.True Sale Securitization in Germany28 3.1Market Development Overview28 3.2Regulatory Prudence29 3.3Recent Market Momentum from Banking Sector30 3.4The True Sale Initiative33 3.5Right to Sell Receivables35 3.5.1Novation, Assignment and Sub-participation35 3.5.2Contractual and Legal Restrictions on Assignment37 3.5.3Data Protection and Banking Secrecy39 3.6Criteria of True Sale Securitization in Germany40 3.7True Sale and the Insolvency Law47 3.8True Sale and Tax Issues49 3.9Problems, Changes and Possible Solutions51 3.9.1Changes in Licensing51 3.9.2Changes in Tax and Accounting System52 4.True Sale Securitization in China54 4.1Market Development54 4.2Major Drivers55 4.3Barriers of the Current Chinese System60 4.3.1True Sale60 4.3.2Special Purpose Entity62 4.3.3Bankruptcy Law64 4.3.4Accounting Rule and Tax System65 4.4Is China Ready for Securitization?68 5.Concluding Remarks70 Bibliography73The most common types of securitized assets are residential mortgage, commercial mortgage, credit card receivables, student loans, automobile loans, equipment leases, high yield bonds, bank loans, export receivables, and other receivablesanbsp;...

Title:True Sale Securitization in Germany and China
Author: Shengzhe Wang - 2005-05-01

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