When structured‑product sponsors repeatedly repackage lower‑grade tranches (for example BBB slices of mortgage pools) into new CDOs or CDO‑squared vehicles, correlation and opacity rise while surface credit ratings can be misleading. That process concentrates tail risk across financial intermediaries and hides the true exposure of supposedly 'safe' senior tranches.
— Recognizing tranche‑recycling as a distinct mechanism focuses regulation and supervision on structural recycling and transparency, not just on individual loan underwriting or capital ratios.
2026.10.04
100% relevant
The article notes that by 2006–2007 CDO collateral 'became dominated by high risk (BBB or A) tranches recycled from other asset‑backed securities, whose assets were usually subprime mortgages' — the concrete fact that motivates the idea.
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