Regulators to soften rules to help revive securitisation
By Huw Jones
LONDON (Reuters) - Global regulators have softened proposed new rules for securitisation in a bid to help to kick start a financing method tarnished by the financial crisis.
Central bankers and policymakers see securitisation, or packaging loans into bonds, as an important source of funding for the wider economy.
But bankers said the easing wouldn't be enough to revive the market on its own and called for wider support for the market.
Securitisation, used to provide money for a whole range of activities, including mortgages, car loans and finance for business, has got a bad name after securitised products based on U.S. home loans turned sour in 2007, triggering a chain of events that led to a global financial crisis.
The market has shrunk dramatically since then. Securitisation in Europe has dropped from $1.2 trillion in 2008 to $322 billion last year, according to Bank of England figures.
The European Central Bank, the BoE and others have called for action to revive securitisation but using stricter standards.
BoE director of financial stability, Andrew Haldane, said last week that securitised or bundled debt need not be the "bogeyman" it was during the financial crash and it could play a role in funding smaller companies.
The BoE is considering how it could intervene to kick start the market.
The Basel Committee of banking supervisors from nearly 30 countries published revised draft rules on securitisation on Thursday that included more flexibility.
In the original draft, the Committee proposed a minimum risk weighting of 20 percent for securitised products but in its latest paper it now proposes a minimum of 15 percent, meaning banks would have to set aside less capital against the products.
But the new lower "floor" being proposed is still roughly double the current risk weighting for securitised products.
"The revisions to the committee's proposals reflect the feedback we have received," the Committee's chairman, Stefan Ingves, said in a statement.
"A simpler set of approaches, more aligned to the underlying capital framework, and a revised calibration should serve the committee's goal of ensuring that securitisation exposures are supported by an appropriate amount of capital," Ingves, who is also governor of the Swedish central bank, said.
The Association for Financial Markets in Europe (AFME), which represents banks like Deutsche Bank and Goldman Sachs, said the easing wouldn't be enough to kick start the market on its own.
"Hopefully, we can expect similar recognition of high quality European securitisation, and the role it has to play in funding the real economy, in other key regulatory announcements expected soon," AFME's head of securitisation, Richard Hopkin said in a statement.
The European Banking Authority is due shortly to publish its definition of high quality liquid assets and bankers hope it includes top-grade securitisations to encourage issuance.
Bankers hope separate new capital rules in Europe from 2016 will be amended to encourage insurers take part in the market.
Basel also said on Thursday it had reviewed some of the assumptions underlying the approaches banks must use to assess risks in securitised products.
"These changes result in greater consistency with the underlying credit risk framework. They would lead to meaningful reductions in capital requirements vis-a-vis the initial proposals, yet would remain more stringent than under the existing framework," the committee said.
Basel's consultation on its revised draft rules ends in March and the committee will then finalise them.
(Editing by Chris Vellacott, Jane Merriman and Mark Potter)
