LONDON, April 11 (IFR) - Global and European standard-setters must revisit their rules on asset backed securities to lift deadly hurdles in the market, the European Central Bank and the Bank of England warned today.
Calling jointly for regulators to ease and align rules for securitised product, the two central bank authorities said the asset class will be an increasingly crucial source of funding for the region’s starved corporate universe.
They said proposed capital rules “treat ABS in ways that might be perceived as unduly conservative”, disregarding the relatively sound performance and low default levels of such securities.
The draft requirements would be particularly punitive “relative to other forms of long-term wholesale funding such as covered bonds,” the note said.
Lawmakers should focus on setting out consistent criteria for identifying sound, straightforward ABS that can boost investor appetite on one side, and provide a controlled tool for banks to offload credit risk without shutting down their lending activity, on the other.
This would mean they should scrap their “currently-proposed ‘catch all’ regulatory treatment for all ABSs.”
The short paper, published ahead of the International Monetary Fund summit, which takes place over the weekend, also blames global agencies for having created “inconsistencies in a number of different fields such as capital charges and liquidity requirement.”
However, the note did point to recent efforts by EU bodies, on the risk retention rule and due diligence requirements, as positive steps towards boosting transparency and aligning interests between banks that originate the securities and potential investors. (Reporting By Anna Brunetti, editing by Alex Chambers)