Asset-backed security

Updated: Aug 20, 2021

A security for which a specified set of underlying assets acts as collateral. The value and income payments of the security are also derived from the underlying assets. Securitization permits the risk of investing in the underlying assets to be diversified and creates an asset-backed security that can be sold to investors. Underlying assets have included mortgage loans, car loans, and cash flows from aircraft leases. The market for asset-backed securities grew very rapidly from the early 1990s. The failure of asset-backed securities to make the payments promised was at the heart of the financial crisis of 2007.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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