Structured Investment Vehicle-SIV

Structured investment vehicles are a pool of investment assets that are funded by issuing short term commercial paper and invested in long term structured finance products such as asset backed securities. Structured investment vehicles attempt to profit off the spread between long term interest rates and short term interest rates. They are usually highly leveraged. SIVs were invented by banks to allow them to leverage capital beyond regulatory requirements. This worked well until the financial crisis began in 2007, leading to massive losses on SIVs.

Essentially, SIVs attempted to profit from the difference in short term and long term rates. They borrowed short and lended long. Coupled with excessive leverage and concentrated in risk assets, this has historically usually led to disaster.

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