In the context of securitisation, commingling risk refers to the risk that the assets of the special purpose vehicle (SPV) may be commingled with the assets of the originator or other third parties. This could happen if the SPV does not have adequate segregation procedures in place.
If the assets of the SPV are commingled, it could make it difficult for investors to recover their investments in the event of a default by the originator. This is because the investors would have to claim their investments from the general assets of the SPV, which could be difficult if the SPV is insolvent.
Here are some examples of commingling risk in securitisation:
- The originator of a securitisation transaction might not have adequate segregation procedures in place. This could allow the originator to use the assets of the SPV for its own purposes, which could put the investors at risk.
- The SPV might not be adequately capitalized. This could make it difficult for the SPV to meet its obligations to the investors in the event of a default by the originator.