👉 The lending weapon, also known as a collateralized loan origination (CLO) or asset-backed commercial paper (ABCP) structure, is a financial tool used by banks to extend credit. In this system, banks bundle together various types of loans—often mortgage-backed securities or other asset-backed instruments—and sell them as securities to investors. The loans within the bundle are then divided into tranches, each with different risk and return profiles. These tranches can be structured to offer varying levels of security and yield, allowing banks to attract a diverse range of investors while managing their risk exposure. The lending weapon is particularly useful for banks as it enables them to leverage their existing loan portfolio to generate additional capital and fund new lending activities, but it also introduces complex risk management challenges.
