Second, ABS are an important component of the collateral framework of the Eurosystem. Third, securitisation, when used well, can transfer risk away from the banking sector, which may support monetary policy as it can help banks free up bank capital, allowing them to extend new credit to the real economy.
The reputation of securitisation or asset-backed securities (ABS) has been severely tarnished by the financial crisis, reflecting both the prominent role of ABS involving complex, opaque structures with poorly underwritten loans and the misuse of derivatives. Moreover, the market was over-reliant on a highly leveraged investor base depending on shortterm wholesale funding.