SIV (structured investment vehicle)

Structured investment vehicles (or SIVs) are typically created by investment banks and can be a way to raise capital without having to record an associated obligation to repay it.

Structured investment vehicles (or SIVs) are typically created by investment banks and can be a way to achieve 'off balance-sheet finance'- raising capital without having to record an associated obligation to repay it.

For example, after the retail arm of a big bank has issued $100m of mortgages to homeowners, the investment banking division might create and sell $100m of IOUs called 'mortgage backed securities' to an SIV- a separate company - for cash.

The SIV raises the money to buy these bonds by selling $100m of its own IOUs to other investors. These IOUs often take the form of short term 'commercial paper' because the SIV hopes that it will receive more interest from the bonds it owns (the mortgage backed securities) than it pays to these lenders.

The ability of an SIV to keep refinancing itself by selling more commercial paper depends on lenders having confidence in the only assets held by the SIV its mortgage-backed securities. Otherwise, funding may have to be sought from the original bank.

Recommended

Modern monetary theory (MMT)
Glossary

Modern monetary theory (MMT)

Modern Monetary theory, or MMT, has become popular on the left, both in the UK and abroad. (Wags say that it stands for "magic money tree".) 
21 Sep 2020
Price to sales ratio
Glossary

Price to sales ratio

A company's market cap divided by the company's annual sales (or revenue) gives us the price/sales ratio.
28 Aug 2020
Too embarrassed to ask: what is a p/e ratio?
Too embarrassed to ask

Too embarrassed to ask: what is a p/e ratio?

Find out how to use the price/earnings ratio (p/e ratio for short) – a useful starting place for investors looking to value a company.
26 Aug 2020
Stock split
Glossary

Stock split

A stock split increases the number of a corporation's issued shares by dividing each existing share.
21 Aug 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020