Structured finance is a sector of finance created to help provide increased liquidity or funding sources to markets like housing and/or to transfer risk. Liquidity and risk transfer is typically achieved in structured finance through securitization of various financial assets (e.g. mortgages, credit card receivables, auto loans, etc.) which has helped to open up new sources of financing to consumers and businesses. Common example of instruments created through securitization are collateralized debt obligations (CDOs) and asset-backed securities (ABS). The legal structure of these instruments may be quite simple or very complex.
The mortgage market uses structured finance extensively and was traditionally meant to provide liquidity to lenders and funding to borrowers. Controversy has arisen since the 2008 Housing Bubble that structured finance had a role in the bubble and was too complex and not transparent enough to manage or regulate.
Read more about Structured Finance: Types
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