Balance sheet and arbitrage CDOs

4. Balance sheet/arbitrage

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The majority of the CDOs structured in the early stages of the market's development were known as balance sheet transactions. These structures were viewed as a natural extension of classic securitisations that were aimed at transferring the credit risk embedded in loans to capital market investors as a means of freeing up regulatory capital.

While securitisations had tended to package very homogenous and sometimes even indistinguishable pools of assets, however - such as residential mortgages

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