On October 23, the European Banking Authority published its preliminary findings regarding the treatment of securitisation under the Liquidity Coverage Ratio (“LCR”) of the Capital Requirements Regulation (“CRR”). The EBA is required to submit its final report to the European Commission by the end of 2013. While these findings are formally stated to be “preliminary” in nature, their publication relatively late in the process and with no formal opportunity for the industry to comment further suggests that the EBA’s views are well settled.
For securitisation the preliminary outcomes are very discouraging: securitisation scores worst of all five categories considered, worse even than equities. In contrast, covered bonds are found to perform best – on a par with government bonds.
AFME and its members have reservations towards the process adopted by the EBA, the methodology being used, the data which is being relied upon and the likely impact. “There are many well-known arguments supporting the important role high quality securitisation has to play in helping restore European growth. The regulatory approach needs to be balanced, sensibly calibrated and evidence-based”, the AFME briefing note states. They present the following steps to improve the process:
Use of multiple data sources shedding light on longer time periods and a variety of market conditions;
Focus on simpler, more transparent indicators of transactions costs;
Analysis that reflects in a practical way known liquidity drivers such as signals of official willingness to intervene
Despite the late stage in the process, AFME calls on the EBA to consider these factors so as to find a calibration for securitisation that is proportionate, evidence-based and signals investors to return to this market.
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