* Basel scales back capital requirement by a third
* Banks say tweak not enough to kick start market
* EU insurance watchdog cuts capital charge on top rated
By Huw Jones
LONDON, Dec 19 Global and European regulators
have softened proposed new rules for securitisation in an
attempt to kick-start a financing tool tarnished by the
Central bankers and policymakers view securitisation, or
packaging loans into bonds, as an important source of funding
for the wider economy.
But bankers said the easing wouldn't be enough to revive the
market on its own and called for wider support for the market.
Securitisation, used to provide money for a whole range of
activities, including mortgages, car loans and finance for
business, came under fire after securitised products based on
U.S. home loans turned sour in 2007, triggering a chain of
events that led to a global financial crisis.
The market has shrunk dramatically since then.
Securitisation in Europe has dropped from $1.2 trillion in 2008
to $322 billion last year, according to Bank of England figures.
The European Central Bank, the Bank of England and the EU's
European Commission have called for action to revive
securitisation to encourage long-term investments, but using
The British central bank's director of financial stability,
Andrew Haldane, said last week that securitised or bundled debt
need not be the "bogeyman" it was during the financial crash and
it could play a role in funding smaller companies.
The Bank is considering how it could intervene to kick-start
The Basel Committee of banking supervisors from nearly 30
countries published revised draft rules on securitisation on
Thursday that included more flexibility.
In the original draft, it proposed a minimum risk weighting
of 20 percent for securitised products but in its latest paper
it now proposes a minimum of 15 percent, meaning banks would
have to set aside less capital against the products.
But the new lower "floor" being proposed is still roughly
double the current risk weighting for securitised products.
"The revisions to the committee's proposals reflect the
feedback we have received," the committee's chairman, Stefan
Ingves, said in a statement.
"A simpler set of approaches, more aligned to the underlying
capital framework, and a revised calibration should serve the
committee's goal of ensuring that securitisation exposures are
supported by an appropriate amount of capital," Ingves, who is
also governor of the Swedish central bank, said.
The Association for Financial Markets in Europe (AFME),
which represents banks such as Deutsche Bank and
Goldman Sachs, said the easing wouldn't be enough to
kick-start the market on its own.
"Hopefully, we can expect similar recognition of
high-quality European securitisation, and the role it has to
play in funding the real economy, in other key regulatory
announcements expected soon," AFME's head of securitisation,
Richard Hopkin, said in a statement.
Separately, the EU's European Insurance and Occupational
Pensions Authority said that "in view of the currrent economic
situation" it would reduce the amount of capital insurers must
hold against triple A-rated securitised debt.
It is proposing to cut the originally proposed 7 percent
capital charge to 4.3 percent, with the charge on risky
securitised debt rising to 12.5 percent.
The European Banking Authority is due shortly to publish its
definition of high quality liquid assets and bankers hope it
includes top-grade securitisations to encourage issuance.
Basel also said on Thursday it had reviewed some of the
assumptions underlying the approaches banks must use to assess
risks in securitised products.
"These changes result in greater consistency with the
underlying credit risk framework. They would lead to meaningful
reductions in capital requirements vis-a-vis the initial
proposals, yet would remain more stringent than under the
existing framework," the committee said.
Basel's consultation on its revised draft rules ends in
March and the committee will then finalise them.