LONDON, March 18 (IFR) - European securitisations could help
solve a looming EUR4trn financing gap that the economy is
facing, argues an industry trade body in a white paper which
states that the capital markets can plug the funding hole left
by deleveraging banks.
It argues that with European banks unwilling or unable to
lend to SMEs and consumers the capital markets need to fill
traditional bank roles, and that securitisation is the most
efficient way to do this.
Prime Collateralised Securities (PCS), which was established
by market participants to create a seal of approval on European
securitisations, arrived at the EUR4trn figure by combining a
Deloitte survey, and data from the European Banking Authority,
and Standard & Poor's.
These estimate respectively EUR2trn in bank deleveraging,
EUR600bn in sovereign bonds tied up by the Basel III liquidity
rules, and EUR1.6trn-EUR1.9trn needed to deliver growth between
2012 and 2016.
The paper from PCS argues that most securitisations have
performed well, while acknowledging the destruction caused by US
sub-prime RMBS, structured investment vehicles, and CDO
It identifies four problems with pre-crisis securitisation -
the originate-to-distribute business model, embedded leverage,
maturity transformation, and lack of transparency.
"Securitisations that did not partake of any of these
components performed extremely well and in line with
expectations," says the paper.
But it points out that securitisation can take whole loans
with idiosyncratic local credit characteristics and turn them
into tradeable credit-enhanced bond format which can be held
easily by capital markets participants, and conform to
recognised international standards.
"This is the type of securitisation that is needed to fund
the European economy: a securitisation model that has been
tested during the most severe crisis since the war and yet has
continued to perform its role as a robust and secure funding
PCS certifies transactions meet certain standards of
transparency, simplicity, quality and standardisation without
making a credit assessment, but best practice. Eight deals have
so far been awarded the PCS label, following its launch in
November last year.
(Reporting By Owen Sanderson; editing by Anil Mayre, Alex