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What impact has collaterized debt obligation have on a bank?

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Answer

Banks have used CDO structures mainly to optmise capital and funding. By putting parcels of loans into a remote vehicle like a CDO the bank frees up the capital it would normally need to hold against these loans. The risks arising from the collapse of the CDO market are that the banks are having to take these assets back onto their balance sheets and they dont have sufficient capital to back them

Answer

Banks have used CDO structures mainly to optmise capital and funding. By putting parcels of loans into a remote vehicle like a CDO the bank frees up the capital it would normally need to hold against these loans. The risks arising from the collapse of the CDO market are that the banks are having to take these assets back onto their balance sheets and they dont have sufficient capital to back them

First answer by ID3301910741. Last edit by ID3301910741. Question popularity: 13 [recommend question].

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