A structured investment vehicle (SIV) is a non-bank financial institution established to earn a credit spread between the longer-term assets held in its portfolio and the shorter-term liabilities it issues. They are simple credit spread lenders, frequently "lending" by investing in securitizations, but also by investing in corporate bonds and funding by issuing commercial paper and medium term notes, which were usually rated AAA until the 2008 financial crisis. They did not expose themselves to either interest rate or currency risk and typically held asset to maturity. SIVs differ from asset-backed securities and collateralized debt obligations in that they are permanently capitalized and have an active management team.

They are generally established as offshore companies and so avoid paying tax and escape the regulation that banks and finance companies are normally subject to. In addition, until changes in regulations around 2008, they could often be kept off the balance-sheet of the banks that set them up – like asset management activity – escaping even indirect restraints through regulation even though the sponsoring banks usually provided some level of guarantee to investors in the SIV. Due to their structure, the assets and liabilities of the SIV were more transparent than traditional banks for investors. SIVs were given the label by Standard & Poor's—Moody's called them "Limited Purpose Investment Companies" or "LiPICs". They are considered to be part of the non-bank financial system, which has two parts, the shadow banking system comprising the "bank sponsored" SIVs (which operated in the shadows of the bank sponsors' balance sheets) and the parallel banking system, made up from independent (i.e. non-bank-aligned) sponsors.

Invented by Citigroup in 1988, SIVs were large investors in securitization. Some SIVs had significant concentrations in US subprime mortgages, while other SIV had no exposure to these products that are so linked to the 2008 financial crisis. After a slow start (there were only seven SIVs before 2000) the SIV sector tripled in assets between 2004 and 2007, and at their peak in mid 2007, there were about 36 SIVs with assets under management in excess of $400 billion. By October 2008, no SIVs remained active.

The strategy of SIVs is the same as traditional credit spread banking. They raise capital and then lever that capital by issuing short-term securities, such as commercial paper and medium term notes and public bonds, at lower rates and then use that money to buy longer term securities at higher margins, earning the net credit spread for their investors. Long term assets could include, among other things, residential mortgage-backed security (RMBS), collateralized bond obligation, auto loans, student loans, credit cards securitizations, and bank and corporate bonds.

In 1988 and 1989, two London bankers, Nicholas Sossidis and Stephen Partridge-Hicks launched the first two SIVs for Citigroup, called Alpha Finance Corp. and Beta Finance Corp. Alpha had a maximum leverage of 5 times its capital with each asset requiring 20% of capital irrespective of its credit quality. Beta had leverage of up to 10 times capital but leverage was based on risk weightings of the assets. In 1993, Sossidis and Partridge-Hicks left Citigroup to form their own management firm, Gordian Knot, located in London's Mayfair. "Alpha Finance was created in response to volatility in the capital markets at the time. Investors wanted a highly-rated vehicle that would yield more stable returns on their capital, said Henry Tabe, a managing director for Moody's Investors Service's London office." Henry Tabe provides further historical background in his book on how SIVs unravelled during the crisis and lessons that can be learned from the sector's extinction.

In 1999, Professor Frank Partnoy wrote, "certain types of so-called 'arbitrage vehicles' demonstrate that companies are purchasing credit ratings for something other than their informational value. One example is the credit arbitrage vehicle, also known as a Structured Investment Vehicle (SIV). A typical SIV is a company which seeks to 'arbitrage' credit by issuing debt or debt-like liabilities and purchasing debt or debt-like assets, and earning the credit spread differential between its assets and liabilities. Much of an SIV's portfolio may consist of asset-backed securities." However, Portnoy's quote is misleading, in reality there is no such "arbitrage", the SIV is acting like any old fashioned spread banker, seeking to earn a spread between its income on assets and cost of funds on liabilities. It earns this spread by accepting two types of risk: a credit transformation (lending to AA borrowers while issuing AAA liabilities) and a maturity transformation (borrowing short while lending long). The scale of both transformations were considerably less than traditional banks, and leverage was also typically half to a quarter of that used by banks, so the risks were less and the returns available were also much lower.

The introduction of Basel I regulations made holding bank capital and asset-backed securities (ABSs) expensive for a bank, depending on the ratings assigned by one of the Government sponsored ratings agencies. ABS's that were able to attain a rating of AA or AAA had capital requirements as low as 1.6% of the securities' size (8%x20%), allowing for higher leverage than would have been allowed otherwise. Bank capital securities, such as dated subordinated debt could be weighted as highly as to amount to a deduction from capital. That is to say all the investment would be funded from capital.

A 'loophole' in the Basel accords meant that banks could provide a liquidity facility to the SIV of up to 360 days without holding capital against it so long as it was undrawn. However these facilities typically represented only between 10% and 20% of the total balance sheet of the SIV.