What does GFOA recommend for the use of structured finance products?

The recommendation from the Government Finance Officers Association (GFOA) for the use of structured finance products emphasizes the necessity of exercising extreme caution. This reflects an understanding of the complexities and potential risks associated with structured finance instruments, which can include derivatives, asset-backed securities, and other complex financial products.

Structured finance can provide benefits such as improved cash flow and flexibility, but it also brings significant risks, including market volatility and liquidity issues. Thus, GFOA advises careful consideration and assessment of the associated risks and rewards before engaging with these products.

The need for caution arises particularly because improper use or misunderstanding of these financial instruments can lead to substantial financial liabilities or losses for municipalities and public entities. Ensuring that stakeholders thoroughly assess their financial situation and the potential implications of these products promotes responsible financial management.