The paradigm of self-stabilizing, equilibrating financial markets, respected for a long time, is seriously challenged by the recent financial crisis. Despite sophisticated bank risk management and comprehensive bank supervision interbank and corporate bond markets collapsed in 2007-2009. The...

This article makes an attempt to present the economics of credit securitisation in a non-technical way, starting from the description and the analysis of a typical securitisation transaction. The article sketches a theoretical explanation for why tranching, or non-proportional risk sharing,...