Who Holds the Toxic Waste? An Investigation of MBS Holdings

CMOs are divided into tranches of various types, in order to segment the interest rate and pre-payment risk into different classes of instruments, creating a class of fairly safe assets. This of course also create a class of fairly, sometimes very risky assets, often known as "toxic waste." In this paper we look for evidence on what types of institutions hold these risky securities, and ask whether holdings seem to be concentrated in government-insured financial institutions.