Legal Definitions - securitize

Definition: To convert assets into securities that can be sold in the financial market. This allows the issuing institution to remove the assets from its books, improve its capital ratio and liquidity, and make new loans with the proceeds from the sale of the securities.

Example: A bank securitizes a pool of mortgages by bundling them together and selling them as mortgage-backed securities to investors. The bank can then use the proceeds from the sale to make new loans, while the investors receive regular payments based on the interest and principal payments from the underlying mortgages.

Explanation: In this example, the bank is able to remove the mortgages from its books and use the proceeds from the sale of the securities to make new loans. The investors who purchase the securities receive regular payments based on the underlying mortgages, which allows them to earn a return on their investment.