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17 March 2014

Reuters: Global regulators to intensify efforts to revive securitisation


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Global regulators will intensify their efforts to revive a securitisation market tarnished by the financial crisis and now seen by policymakers as a key source of funds for the economy, said IOSCO Secretary General David Wright.


"IOSCO and the Basel Committee are close to agreeing on a working group to look at how the securitisation markets are working, and to see whether new thinking is needed", IOSCO Secretary General David Wright said on the sidelines of a Chatham House financial conference. Efforts to revive securitisation have also been caught up in separate regulatory attempts to crack down on so-called shadow banking, or lending outside mainstream methods such as regulated banks.

The European Union's executive European Commission is also keen to bring securitisation out of the cold and will publish its plans next week on ways to boost long-term financing.

The Association for Financial Markets in Europe (AFME), a banking lobby, gave a mixed welcome to Wright's announcement. "Unfortunately, even after strong messages of support from many high-level policymakers in recent months, on the day-to-day level we continue to encounter new regulations for securitisation which are unjustified and will restrict the market's recovery", said Richard Hopkin, the AFME's head of securitisation. "This sends negative signals to investors and further tilts the playing field against securitisation."

The EU wants a greater amount of financing for the economy to come from market-based sources such as securitisation. About 30 per cent of financing comes from such sources, the rest from banks. That is roughly the opposite situation to the US model that some European policymakers want to match to reduce concentration of risk at banks and diversify funding.

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European officials must proceed with caution if they want to develop a more vibrant market for securitised pools of private-sector loans given the role these instruments played in the global financial crisis six years ago, a top official at the European Investment Bank. "There is a still a bit of cautiousness. The experience of [asset-backed securities] in 2007 and 2008 is still on the minds of people, which is not a surprise", EIB Vice President Wilhelm Molterer said in an interview with The Wall Street Journal. "We should learn the lessons out of this rather tough time."

Last May, Mr Draghi said the EIB was the institution "best suited to handle matters" in the ABS field. But Mr Molterer's comments suggest that for now the EIB will stick largely to its long-standing role of providing finance to the private sector, including small business, as it branches into less traditional vehicles including venture capital, microfinance and social entrepreneurship. "The range of products for covering [small and medium-size businesses] is becoming much more sophisticated than it was two or three years ago", he said. Still, "there is a certain limitation for ABS".

Further reporting by © WSJ



© Reuters


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