‘Securitisation market could have funding role’

The European securitisation market could play a vital role in corporate funding once economic fundamentals return to normal, but proposed regulatory changes pose a huge challenge, according to ratings agency, Standard & Poor’s.

S&P finds that the collapse in new securitisation issuance since the financial market meltdown stems mostly from the weak state of the banking system and the abundance of central bank support. Securitisation has been cited as one of the main causes, particularly in the US subprime sector.

The model is based on banks pooling together tranches of loans and packaging them as asset-backed securities, mostly in the form of mortgages. They are then sold to investors.