The subprime boom began in early 2004 and stopped in mid-2007. The two major credit derivatives (ABS and CDOs), which opened a market for subprime both experienced very rapid growth, at the same time thanks to the use of a market scanner.
The ABS could then be mixed with less risky bonds to issue CDO obligations for banks to provide investors with guaranteed investment returns. The securitization allowed to take out the loans from the balance sheet of the bank. In fact, a bank must have a ready reserve of capital to cope with any difficulties of the borrower (internal mechanism caution followed by the regulator).
By securitization (ready to be turned into bonds sold to investors (collateralised debt obligation, or CDO), and the bank could get the loan on its balance sheet and avoid immobilizing its reserve capital. Thus, it could continue to place new loans, thus re-feeding the process.
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