CORRECTED-EC delay on liquidity buffers could boost securitisation

Fri Jun 20, 2014 5:04am EDT

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(Corrects capital buffer to liquidity buffer, in headline and third para. LCR deadline is set under CRD IV in second para. Quality securitisation initiative attributed to EU legislators in seventh para)

* EC pushes back deadline to determine liquidity buffer composition

* New deadline coincides with EBA report on quality assets

* High quality ABS may have case for inclusion in LCR principles

By Anna Brunetti

LONDON, June 19 (IFR) - The European Commission is postponing a decision on new bank liquidity regulations, sources with knowledge of the matter said, a delay that could give Europe's securitisation sector a badly needed shot in the arm.

As regulators struggle with the task of defining the so-called Liquidity Coverage Ratio (LCR), the deadline set under the capital requirements directive (CRD IV) has been pushed back three months to September.

Insiders say that could allow more time to get more securitised products approved as liquidity buffer when the new liquidity rules are finally announced.

Both the Bank of England and the European Central Bank have called for the rehabilitation of the structured finance market, which fell into disfavour in the wake of the global meltdown.

Securitisation might be a useful way to boost the eurozone economy as it could increase the supply of loans available to cash-starved companies.

At the moment, under the proposed Basel III rules, only certain residential mortgage-backed securities (RMBS) qualify - those in the lower tier of the LCR's second level - and even these are subject to a 25% haircut.

But members of the securitisation industry say those parameters are too narrow, especially with the notion of high-quality securitisation (HQS) being introduced by European legislators.

The sector wants better treatment through lower capital charges - meaning buyers have to hold less capital against their ABS investments - and wider inclusion in the liquidity buffer.

And there are signs that these pleas for change are being heard.

"If safe and transparent products are identified, then the Commission is keen on considering this in the prudential treatment of securitisation," said Chantal Hughes, spokeswoman for Commissioner Michel Barnier.

Officials sources inside national finance ministries and elsewhere told IFR that there was "definitely" progress on widening out the terms of a draft circulated in May, under which the range of ABS accepted as a second-tier liquidity buffer was broadened but is still subject to a 25% haircut.

The extension to the deadline also coincides with that of the parallel stream of work that the European Banking Authority is carrying out to define high quality assets, after being tasked by the Commission earlier this year. This extra time would allow the Commission to assess the EBA's findings, and even incorporate HQS principles into the LCR. (Reporting By Anna Brunetti, editing by Anil Mayre, Alex Chambers and Marc Carnegie)

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