And the process might not end there: Next that mortgage-backed security might be sold and repackaged into several new securities, and so on. In such examples, the number of institutions that might be involved in the provision of a single mortgage credit can easily go from one (the originating bank) to at least five or more.
And such long chains can create additional points of vulnerability in the financial system. Nonbanks also increase the amount of maturity transformation conducted in the financial system without the stability-enhancing backstops offered to banks.