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Figure 2 is a flow diagram that illustrates how financial markets use asset securitization to alter how resources are transferred from savers to nonfinancial borrowers in indirect finance. As in figure 1, savers include households, nonfinancial businesses, government sectors, and foreign investors. Nonfinancial borrowers include nonfinancial businesses, government sectors, households, and foreign borrowers. As before, in indirect finance, savers use financial intermediaries to transfer funds to borrowers. However, using asset securitization financial intermediaries now repackage borrowers' loans into securities which are then sold in the securities markets. The end result is that financial intermediaries transfer funds between savers and borrowers, but no longer hold borrowers' loans on their own books.
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