What Is Structured Finance?

On the heels of prominent corporate downgrades in the U.S., the haircut unwinding of exposed collateralized debt obligations reverberated in a drumbeat of warnings and mounting regulatory unease about current risk measurement standards of derivatives and their impact on financial stability. The subsequent drumbeat of warnings about probable knock-on effects of leveraged structured claims on financial stability in times of stress, however, hardly extended beyond indistinct assessments of how derivatives might propagate asset shocks across different capital market segments. This brief article defines structured finance in order to inform a more specific debate about the regulatory challenges posed by the assembly of asset exposures and credit risk transfer in complex structured finance transactions.