The unprecedented global financial crisis stemming rapidly and simultaneously around the global from the failure of Lehman Brothers, a U.S. investment bank, in September 2008, has significantly affected the world’s real economies.

As one of the main factors escalating the global financial crisis and accelerating the collapse of the financial markets, much light was shed on the turmoil in the securitization markets brought about by the failure of the U.S. subprime loan market in 2007, together with highly leveraged transactions utilizing credit derivatives.

Among the issues and concerns being identified or linked with securitization, especially in the U.S., were the following: a higher-than-expected level of deterioration of the underlying assets of securitization products (such that poor assets were securitized with inadequate information disclosure to investors); ill-considered relaxation of the requirements for the issuance of securitization products; the moral hazard resulting from the ease of risk shifting; the rampant growth of securitization products that were excessively complex or highly leveraged; excessive reliance on rating agencies; and a decline in the reliability of the ratings.  Thus, securitization clings to the image that securitization products are difficult to understand because of their schematic complexity.  For these reasons, the trustworthiness of securitization has been adversely affected.

We believe, however, that the reasons for the existence of securitization, its role, and usefulness have not been lost.

Since the outbreak of the global financial crisis, there has been an unending stream of cases of forced bankruptcy due to deterioration in fund management.  Looking at the current situation, we are renewing our awareness that a lifeline for corporate activities is to secure a diversified means of fund-raising without excessively relying on indirect financing, and the ability to easily raise funds at lower costs.

Securitization should perform the role of market-type indirect financing.  Unquestionably, this scheme remains effective.  A problem of reduced liquidity may separately occur in conjunction with a slowdown in the flow of funds into the securitization market.  However, techniques of securitization themselves are useful as a means of financing that do not rely on the creditworthiness of the fund-raising party, but on the credit value of the underlying assets.  We believe that appropriate devices, such as strict screening of the underlying assets for a securitization transaction, the adoption of a scheme with high legal stability, and the enhancement of transparency in the underlying assets of a securitization product, will eliminate many of the issues arising in connection with securitization products in the U.S.

Under the current difficult circumstances surrounding securitization, the Securitization Forum of Japan is now move than ever committed to widely disseminating the reason for the existence, role, and usefulness of securitization by thoroughly discussing and considering related issues; through policy proposals and other activities; and is also committed to realizing best practices while appropriately governing the market participants.

The Securitization Forum of Japan