|
|
Evaluation finds that risk retention and higher prudential requirements have enhanced the resilience of the securitisation market, without strong evidence of material negative side-effects on financing to the economy.
Further analysis will be undertaken, incorporating feedback from this public consultation, before publication of a final report at the end of 2024.
The Financial Stability Board (FSB) published today a consultation report with interim findings of its evaluation of the effects of the G20 financial regulatory reforms on securitisation. The evaluation focuses on the International Organization of Securities Commissions (IOSCO) minimum retention recommendations and the Basel Committee on Banking Supervision (BCBS) revisions to prudential requirements for banks’ securitisation-related exposures. These reforms aimed to address the vulnerabilities in the securitisation market that contributed to the amplification of losses during the 2008 global financial crisis (GFC).
The analysis thus far suggests that risk retention and higher prudential requirements have enhanced the resilience of securitisation markets. Securitisation volumes containing complex structures that contributed to the GFC have declined significantly. The quality of collateral in securitisations has improved in some asset classes (e.g. residential mortgage-backed securities (RMBS)), though not in others (e.g. collateralised loan obligations (CLOs)). Credit performance has been strong post-GFC, and the market has not faced significant stress. Some analyses suggest increased resilience of the senior CLO tranches despite the deterioration in lending standards and no obvious misalignment of incentives between RMBS issuers and investors in recent years. However, it is difficult to attribute these outcomes directly to the reforms given confounding factors.
While securitisation has diminished in relation to private-sector credit since the GFC, the decline has not been uniform across all segments and much of it took place in the immediate aftermath of the GFC, before the reforms were implemented. It is also not clear that overall financing to the economy has been negatively affected, if one considers growing corporate and household indebtedness and the growth in alternative financing instruments over this period.
The reforms have contributed to a redistribution of risk from banks to the NBFI sector, with banks now holding higher-rated tranches. This shift is not unique to securitisation, given the increased reliance on market-based intermediation since the GFC.
The FSB is inviting comments on this consultation report and the questions set out. Responses should be submitted via this secure online form by 2 September 2024. For questions, please contact the FSB (fsb@fsb.org). Responses will be published on the FSB’s website unless respondents expressly request otherwise on the online form.