These have enabled financial institutions to unbundle and reallocate risks of various kinds, such as credit and interest rate risks, based on diverse and complex methods for analyzing and managing risks. Let us take securitization of mortgages, the root of the U.S. subprime mortgage problem, as an example. Mortgages involve various risks.
For instance, a lender or an investor may face credit risk, the risk of loss resulting from the counterparty's failure to perform its financial obligations, as well as interest rate risk, the risk of loss from a rise in interest rates during the loan term.