Financial Crisis I

Question 0

Maturity Mismatch

Answer 0

Sponsoring banks normally grant credit lines to SIVs and ABCP Conduits to cover some or of their liabilites in case they cannot be rolled over.
-> link between performance of sponsoring banks and that of their SIVs and ABCP Conduits.

Question 1

SIVs and ABCP Conduits

Answer 1

Off-balance sheet vehicles created by sponsoring banks.

Invest in long-term assets like CDOs and RMBS and fund these investments through short term liabilities.

Profits because of the difference between the interest earned on long-term assets and the lower interest paid on short term liabilities.

Question 2

ABCP Conduits

Answer 2

Issue Asset-backed Commercial Paper (ABCP)

Question 3

Structured Investment Vehicle (SIV)

Answer 3

Issue

• ABCP
• medium term notes
• capital notes

Question 4

Financial Crisis

Answer 4

SIVs and ABCP Conduits struggled to roll ober their liabilities

• > sponsoring banks were forced to bail the out
• > they absorbed thr assets of the vehicles into their balance sheets
• > large losses for the banks