Concentration risk refers to the risk that a securitisation is exposed to a particular asset class, geographic region, or borrower. This means that if there is a problem with the asset class, region, or borrower, it could have a significant impact on the securitisation.
For example, a securitisation that is concentrated in subprime mortgages would be exposed to the risk of a decline in the housing market. If the housing market were to decline, the value of the underlying mortgages would decline, and the securitisation could suffer losses.
Here are some examples of concentration risk in securitisation:
- A securitisation that is concentrated in a particular asset class, such as subprime mortgages.
- A securitisation that is concentrated in a particular geographic region, such as the United States.
- A securitisation that is concentrated in a particular borrower, such as a large corporation.