<P> Traditionally , banks lend to borrowers under tight lending standards , keep loans on their balance sheets and retain credit risk -- the risk that borrowers will default ( be unable to repay interest and principal as specified in the loan contract ) . In contrast , securitization enables banks to remove loans from balance sheets and transfer the credit risk associated with those loans . Therefore , two types of items are of interest : on - balance sheet and off - balance sheet . The former is represented by traditional loans , since banks indicate loans on the asset side of their balance sheets . However , securitized loans are represented off the balance sheet , because securitization involves selling the loans to a third party ( the loan originator and the borrower being the first two parties ) . Banks disclose details of securitized assets only in notes to their financial statements . </P>
<P> Traditionally , banks lend to borrowers under tight lending standards , keep loans on their balance sheets and retain credit risk -- the risk that borrowers will default ( be unable to repay interest and principal as specified in the loan contract ) . In contrast , securitization enables banks to remove loans from balance sheets and transfer the credit risk associated with those loans . Therefore , two types of items are of interest : on - balance sheet and off - balance sheet . The former is represented by traditional loans , since banks indicate loans on the asset side of their balance sheets . However , securitized loans are represented off the balance sheet , because securitization involves selling the loans to a third party ( the loan originator and the borrower being the first two parties ) . Banks disclose details of securitized assets only in notes to their financial statements . </P>
off balance sheet items for credit risk assessment
off balance sheet items for credit risk assessment
securitized loans
securitized loans