rendering tradable in the market place – assets that until a few years ago would have been highly illiquid and remained on banks’ balance sheets has increased the ability of the financial system to create and supply liquidity.
However, if the securitisation of illiquid assets such as mortgage loans is fostered by unsustainable dynamics in the price of the underlying assets, and if the products are not sufficiently transparent, an “originate and distribute model” that seeks to create market liquidity in this way can increase systemic risks and ultimately increase the risks to price stability.