ECB and BoE ‘must act quickly and revive the securitised debt market’
The market for debt backed by pooled home and other loans was tarnished when bonds securitising low-quality US mortgages became untradable, kicking off the 2007-09 financial crisis that eventually led to taxpayers having to bail out banks.
The ECB and the Bank of England have said for months that reviving the top-quality end of the market would help plug a funding gap created by banks lending less, especially to small and medium-sized companies.
As part of measures to pump money into the sluggish eurozone economy, the ECB also said last week it was stepping up preparations to buy asset-backed securities, pending “desirable” regulatory changes to spur issuance.
The two central banks have outlined hurdles to a revival and the Association for Financial Markets in Europe, which represents leading banks, yesterday said it was now time to act.
Some €181bn of securitised debt was issued in Europe last year, down 28% on 2012, only half of which was actually placed with investors, the Association for Financial Markets in Europe said in a report. Placed issuance fell to €13.6bn the first quarter of this year.
“High-level statements of support from central banks and policymakers are extremely welcome,” the association’s chief executive Simon Lewis said.
“But they need to be translated into positive developments in the reality of regulation. The Association for Financial Markets in Europe is calling for urgent, co-ordinated action by policymakers to reconsider the treatment of securitisation.”
Even regaining the volumes seen a decade ago could release up to €150bn a year for the economy, the association said.
The banking lobby has called on global and EU regulators to ease the amount of capital that lenders, who create the debt, and insurance companies, who are key buyers, must set aside in case the bonds turn toxic, as in 2007.
Ratings agency Standard & Poor’s said last month that proposals by the Basel Committee of banking supervisors from nearly 30 countries would increase the “risk weighting” for securitised debt by up to eight times current levels.
For buyers like insurers, some triple-A-rated securitised debt would attract capital charges more than 17 times higher under proposed EU rules than for covered bonds, a comparable debt instrument, S&P added.
Basel is set to finalise its capital charges on securitised debt this year and may not radically scale back capital charges.
Yves Mersch, a member of the ECB’s executive board, said last month that Europe should go it alone in cutting capital charges if it takes too long at the global level. He will speak at an association conference on securitisation in Barcelona this week.
