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25 April 2014

Reuters: ABS industry pins hopes on ECB repo criteria for rules relief


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Policy-makers should boil down a standard definition of high-quality securitisation pivoting around the ECB collateral-eligibility criteria to boost the recovery of the asset class, market participants say.


Greeting the recent joint paper by the European Central Bank and the Bank of England as a "eureka moment" for the industry, market players now seek to answer one question: what would it mean, in concrete terms, to remove regulatory roadblocks from securitised markets? "There is a sense of urgency in the document that represents almost a eureka moment for the market, after years when regulators have overcompensated for the faults of the crisis", said a senior securitisation official at a UK bank.

"The paper really indicates the two central banks won't have much tolerance for further delays" from other regulators, he added. But drawing a line between highly liquid ABS and less straightforward ones - the necessary preamble that the European Commission itself has been said to be working on- will be a challenging balancing act. "The complexity of defining an abstract premium quality standard for ABS should not be underestimated", said Ralf Raebel, senior analyst at DZ Bank's ABS team, "especially since every crisis has its own 'quality problems' and a blanket cover of all eventualities ex ante is practically impossible."

Analysts are calling on regulators to mitigate existing definitions by the EU insurance watchdog and indirectly by the Basel Committee and the European Banking Authority - in their draft Liquidity Coverage Ratio - with the more permissive criteria of the ECB collateral eligibility. This would allow the asset class to be assessed and differentiated fairly.

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© Reuters


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