2  BIS Review 117/2009  Securitized products, which triggered the current financial crisis, included various innovations to control the risks associated with normal lending and securities investment. For example, the bankruptcy remoteness of cash flows obtained from underlying assets as well as the creation of a risk buffer by setting multiple tranches enhanced the safety of investments and facilitated credit risk transfers.
In addition, credit default swap transactions also allowed easy credit risk transfers. These methods were believed to be capable of controlling accurately the risks associated with securitized products. However, the reality was different. As turmoil actually occurred, massive risks surfaced, and it became clear that the methodology of risk control initially envisaged did not work.