Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Structured Finance

What it is:

Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally, a simple loan will not suffice for the borrower so these more complex and risky finance instruments are implemented.

How it works (Example):

In many cases, the needs of a large borrower involve the execution of a series of discrete transactions as dictated by operational needs.  This cannot be accomplished with a mere loan

Structured finance products are usually include derivatives and securitized and collateralized debt instruments like syndicated loans, collateralized mortgage obligation mortgage obligations, collaterized bond obligations (CBOs), collaterized debt obligations (CDOs), credit default swaps (CDSs) and hybrid securities.

Why it Matters:

Structured financial products are not offered by all lenders and, in almost all cases, are not transferable between other types of debt in the same way as a straightforward loan.  They are usually only offered to large borrowers needing a vast injection of capital or another source of income.