Asset is considered as the various properties whether in cash or kind for which you have the ownership. When you are financing you other need for which the value is derived from the other assets, which you would like to place as a collateral security. When in case you don’t have a single asset which covers the complete value one has to give as security then they combine their various other assets that has high range of liquidity and they have good market value. These sorts of security will the investors to investor in several areas as they are considered a combination of several assets. These assets can be anything right from credit cards payment due to amount receivable from the royalty out of movies. Most of the times there are separate agency or institution set up to take care of these activities related to the securitization concept. Securitization is the process of pulling together the various assets that are tuned into financial instruments, which can be in turn provided to the investors in general to be sold.
This agency that was mentioned above is responsible for the sales of the instrument that will pay back the loans that the banks have already granted for the formation of the asset in talk. This is also responsible for categorizing the underlying assets to depending upon the risk preferred by the investor who invests on the securities that belong to this asset value alone. Until the risk of credit on the asset that is under the process is transferred to another financial institution, the bank takes away the name of the asset from the balance sheet of the bank and enters the value of asset in the form money in the balance sheet. Therefore, if there is a sale or any form of transaction on the part of the security then it will help increase the credit rate of the security in question. The higher the rating on the credit basis, the lower is the rate of interest on the security that is backed by the asset.
Therefore, one of the major advantages of the bank from this sort of dealing is that it decreases the level of risk that the assets carry with them. These are the assets that are recorded in the balance sheet of the company and thereby reducing the risk will increase the value of the asset that is being recorded.