Beyond conventional asset-backed securities, financial intermediaries now have additional derivative instruments for credit risk transfer at their disposal: plain vanilla credit derivatives such as single name credit default swaps or, at the other end of the spectrum, complex structured products such as CDOs of CDOs. In some countries, even retail investors now have direct access to credit risk.
And all this played hand in hand with an over-reliance on credit ratings as well as difficulties regarding the valuation of complex financial instruments. Moreover, pipeline risks were not managed well, leading to large warehouse exposures for originators and packagers, inflating their balance sheets and using up their capital. The turbulence has resulted in a slowdown in credit repacking.