Brussels, 26/08/2014 (Agence Europe) - Revitalising the securitisation market is a priority in the work of financial experts at the EU Council of Europe ahead of the drafting of a roadmap on financing of the real economy.
“The issue of securitisation received particular attention from the Financial Services Committee members. A broad consensus emerged on the need to foster this type of instrument (…). Indeed the revitalisation of an appropriately structured and regulated European securitisation market is instrumental to the efficiency and stability of the financial system and can contribute to ensuring the long-term financing of the EU economy”, says the FSC in a note in August to the EU Council of Ministers' Economic and Finance Committee in a version of the document seen by this newsletter. The FSC says that small and medium-sized enterprises would directly benefit if “SME loans could be securitised more often in an appropriately structured manner, but would also benefit indirectly (if) the issuance of other types of asset-backed securities could be revitalised, thereby freeing up capital on bank balance sheets.”
Securisation turns loans into securities and then sells them on to other financial players thus boosting cash flow. It was the securisation of unsound mortgage loans, however, that sparked the financial crisis in the United States. Faced with low growth and deleveraging by the banks, member states have been seeking levers to encourage long-term financing of the real economy and the European Commission has been working on the subject since April (see EUROPE 11050). The question is on the agenda for the meeting of the Ecofin Council in Milan in mid-September.
The Council experts note the need to allow the emergence of a high-quality securitised financial products market. “A key prior step will be to agree at EU level on the most appropriate criteria to designate 'sound' or 'qualifying' securitisation instruments across the board. This is instrumental to ensuring consistency of the approach across different financial sectors (i.e. bank, insurance undertakings and asset managers) and different regulatory treatments (i.e. liquidity and capital requirements)”.
The FSC has identified no fewer than 19 areas of legislation at EU and global level connected in some way with securisation. The European Commission will act as coordinator on the question and will unveil implementation measures in September relating to securitisation to transpose into EU law the solvency II rules for the insurance industry and the rules for banking laid down in the delegated act detailing the LCR liquidity ratios introduced in the CRD IV legislative package. Its controversial proposal to reform the structure of banking includes an implementing measure laying down the types of securitisation that do not endanger financial stability (see EUROPE 11007). The measure regulating money market funds lays down eligibility criteria for the funds to invest in securitised financial products (see EUROPE 11034).
The European Central Bank and Bank of England will unveil options in the autumn for improving the operation of the European securitisation market, following a public consultation exercise that ended in July.
The FSC notes: “A number of FSC members have already flagged the existence of a discrepancy between the emerging definitions of 'qualifying securitisations' in EU discussions and in the international sphere (Ed: the G20, the Financial Stability Council, the Bank of International Settlements and the International Organisation of Securities Commissions [IOSCO]). (…) With the outcome of international negotiations being uncertain and with the EU discussions at a more advanced stage, the need arises for the EU to lead the way in developing qualifying securisation markets and to put forward its common approach in international settings”. (MB)