Final answer:
a. Settlement
Securities Lending typically occurs during the settlement process of the securities processing chain, which involves the delivery of securities against payment. Other parts of the chain are Asset Servicing, Reorganization, and Issuance. Securitization, which can affect loan quantity, played a key role in the 2008-2009 financial crisis.
Step-by-step explanation:
Securities Lending typically occurs during the settlement part of the securities processing chain. Settlement is the process where securities are delivered, usually against payment, to fulfill contractual obligations, such as those arising from securities trades.
Securities lending involves the owner of securities lending them to a borrower in exchange for collateral, which could be cash, other securities, or a letter of credit. The lender retains the economic benefits of the securities, while the borrower may use the securities for various purposes such as covering short sales, completing failed trades, or gaining access to securities for dividend purposes.
In the context of the securities processing chain, the options Asset Servicing, Reorganization, and Issuance refer to other distinct processes. Asset Servicing involves the administration of events like dividends, interest payments, and corporate actions on behalf of security holders. Reorganization refers to the process of restructuring a company's business or legal structure. Issuance is the initial offering of securities to investors.
Turning to financial market dynamics, an increase in the quantity of loans made and received could result from various changes, such as improved economic conditions or policy changes that lower the cost or increase the availability of credit. However, it's important to be cautious as illustrated by the case of securitization where the original lender doesn't retain the risk of the loan, potentially leading to riskier lending practices.
Securitization played a significant role in the 2008-2009 financial crisis by allowing banks to sell off their mortgage loans to investors, removing the incentive for banks to ensure the loans were likely to be repaid. This led to widespread issuance of subprime loans—or NINJA loans—contributing to the instability of the financial market when many borrowers defaulted.