contains details of special purpose vehicles.
Risks of a SPV
Features and uses of SPVSecuritisation Asset transfer Financing Risk sharing Raising capital
How are Investors Classified?
Key benefits to SponsorsAsset Ownership Minimal red tape Tax benefits Legal protection Isolation of Financial RiskMeeting regulatory requirementsFreedom of jurisdiction
Risks of a SPVReputational RiskSignalling EffectLiquidity and Funding RiskEquity RiskMark to Market RiskLack of TransparencyRegulation
Managing the risks Regulation and scrutinyOversightReporting capabilityGovernanceMotivationRegulationSimplificationConsolidationExternal ratingsManaging the risks: ReintermediationReintermediation of off-balance sheet assets back onto the balance sheets of the sponsoring banks.Reason: Benefits and uses of SPVs do not justify the risks involved and the potential for them to be misused.Bankruptcy RemotenessOnly Reputational Risk
SPVs on or off-balance sheet???IFRS RequirementsConsolidated into the books of the parent entity if the entity controls SPVControl = PEA
US GAAPChange in Rules since 2010
ConclusionSPVs have played and continue to play an important role in financial markets both in financing projects and offering investors a greater choice of ventures to invest in.Usage of SPVs is not inherently problematic, but rather poor risk management can lead to failures.Consolidation may provide a solution for many problems.If not: More Transparency and Better Regulation