What Are Cash Reserves?

The cash reserve account is protected by cash and provides working liquidity and loss compensation; the funds can be derived from the initial issuance of bonds, and if the funds are depleted, they are supplemented from time to time by residual cash flows to maintain their Necessary balance.

Cash reserve account

The cash reserve account is protected by cash and provides working liquidity and loss compensation; the funds can be derived from the initial issuance of bonds, and if the funds are depleted, they are supplemented from time to time by residual cash flows to maintain their Necessary balance.

The cash reserve account is a separate trust account, which is deposited by the sponsor at the beginning of the securitization. The gaps in principal, interest, and service fees that cannot be made up by the spread account are made up by this account. This account will not be paid until all securities principal and interest have been paid. In the United States, a series of products from Resolution Trust Corporation (RTC) has a cash reserve of approximately 25% to 30% of the issued amount.

Chinese name

The cash reserve account is protected by cash, providing liquidity and loss compensation; the funds can be sourced from

Cash reserve account is a separate trust

The funds of the cash reserve account mainly come from two parts: First, the spread, that is, the difference between the income generated by the underlying asset portfolio and the principal and interest paid to investors and the SPV operating expenses, is actually the SPV's net income from the securitization business. The second is SPV's own funds. The more funds accumulate in the cash reserve account, the more secure the interests of investors, and the credit rating of asset-backed securities will be increased accordingly.