19 May 2014

FT: European securitisation - Five steps to recovery

It is not often that the Bank of England and European Central Bank feel sufficiently exercised about a problem to issue a joint statement. Recently they did, and what was on their minds was the anaemic state of the market for European securitisation – the financing technique whereby income streams from mortgages, auto, consumer and business loans are packaged by banks into securities and bought by investors.

Last month's joint statement read: "Securitisation, if appropriately structured and regulated, can complement long-term wholesale funding sources for the real economy, including for small and medium-sized enterprises." The Association for Financial Markets in Europe  has found this trend is continuing. Here are five suggestions to address what still needs to be done to bring the market back to life.

• Risk-weighted assets: What is needed is a recalibration of the proposals to reflect the good historic performance in Europe, and to bring securitisation into line with other fixed income securities and underlying asset pools.
• Capital requirements: Our case is for still lower capital charges to create, at the very least, a comparable playing field with other fixed income securities such as corporate and covered bonds, and direct investment in the same assets.
• Liquidity coverage ratio: We are arguing for the inclusion of a wider range of assets as high-quality liquid assets.
• Transparency and disclosure: Standards of transparency on European securitisations have always been good. Yet regulations continue to be proposed that create duplication, confusion and intrusion into the free choices of issuers and investors, further hindering the revival of the market.
• Practical steps: Encouraging statements from high-level policymakers need to be translated into positive developments on the ground – in all of the fields referred to above.

Full article (subscription)

BoE/ECB- Joint statement 11.4.2014

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