Explanation

Option A is not a consequence of securitization. In fact, securitization can create moral hazard where originating banks have less incentive to carefully approve and monitor loans because they transfer the default risk to investors through securitization.

Analysis of each option:

• Option B: ✅ Correct - Securitization does transfer default risk from the originator to investors who purchase the securitized products.
• Option C: ✅ Correct - By transferring risk and freeing up capital, securitization can enable originating institutions to offer lower interest rates.
• Option D: ✅ Correct - Securitization creates new investment vehicles that allow institutional investors to gain exposure to asset classes they might be restricted from holding directly.
• Option A: ❌ Incorrect - This is actually the opposite of what happens. Securitization can reduce the incentive for careful loan monitoring (the "originate-to-distribute" model), which was a contributing factor to the 2008 financial crisis.

Key Concept: The "originate-to-distribute" model in securitization can create misaligned incentives where loan originators focus on volume rather than quality, since they transfer the credit risk to investors.