Conduit is a special purpose vehicle (SPV) that is used to securitise assets. Conduits are typically set up by financial institutions and are used to pool together a variety of assets, such as mortgages, loans, or receivables. The securities that are issued by the conduit are backed by the underlying assets, and the payments from the borrowers are used to pay off the securities.
Conduits are a popular way to securitise assets because they allow financial institutions to transfer the risk of the underlying assets to investors. This can help financial institutions to reduce their balance sheets and improve their capital ratios.
Here are some examples of conduits:
- Residential mortgage-backed securities (RMBS) conduits: These conduits are used to securitise residential mortgages.
- Commercial mortgage-backed securities (CMBS) conduits: These conduits are used to securitise commercial mortgages.
- Asset-backed commercial paper (ABCP) conduits: These conduits are used to securitise short-term assets, such as receivables.