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2008-06-04 — minyanville.com
Over the last 15 years, increased competition (within the industry and increasingly from non-banking institutions) and the reduction of earning from the commoditization of products forced banks to rely on “voodoo banking†- performance enhancement to boost returns. Focus on risk adjusted returns (introduced in the early 1990s by JP Morgan (JPM) and Bankers Trust) changed the “business modelâ€. Traditionally banks made loans that tied up their capital for long periods - e.g. up to 25/30 years in a mortgage. In the new “originate to distribute†model, banks “underwrote†the loan, “warehoused†it on its balance sheet for a short time and then parceled them up with other loans and created securities that could be sold to investors (“securitizationâ€). source article | permalink | discuss | subscribe by: | RSS | email Comments: Be the first to add a comment add a comment | go to forum thread Note: Comments may take a few minutes to show up on this page. If you go to the forum thread, however, you can see them immediately. |