Bank of England says reviving asset-backed debt a long haul task
LONDON (Reuters) - Reviving Europe's asset-backed securities markets is a long-term project and attempts at a short-term fix would be a mistake, but lower capital charges will help, a Bank of England official said on Wednesday.
David Rule, Bank of England executive director for prudential policy, said global capital charges for securitised debt published by global regulators in December, and attacked by banks as still too punitive, were "broadly right."
"But there is a case for some lowering of capital requirements for simple, transparent and comparable transactions on the grounds of lower structure risk," Rule said in speech to a securitisation conference in Barcelona, Spain released by the Bank in London.
The European Union sees reviving the asset-backed market as a "quick win" to boost the ability of financial markets to fund economic growth.
The EU is due to publish a draft law to set up a "high quality" securitised debt market made up of bonds based on a pool of loans such as mortgages.
The EU is also expected to proposed lower capital charges for asset-backed securities to try to revitalise this market which has shrunk since the financial crisis. Asset-backed bonds in the United States turned sour in 2007 and have been blamed for helping to trigger the financial market meltdown.
Many investors prefer to put their money into covered bonds rather than asset-backed securities because the risks are kept on a bank's books, acting as an incentive to keep issuance standards high. Covered bonds are backed mainly by home loans.
"We would support moves to put securitisation and covered bonds on a more level playing field," Rule said without elaborating.
Rule said he preferred to focus on the "long-term goal" of building sustainable securitisation markets rather than reviving securitisation in the short run.
"Comparing current issuance with pre-crisis levels misses the point that the pre-crisis market was fragile, based on investment by leveraged funds and bank treasuries," Rule said. "Building a stable market will require a broader, real money investor base."
(Reporting by Huw Jones. Editing by Jane Merriman)
