| LONDON, June 7
LONDON, June 7 Global regulators may intervene
and iron out differences in how the United States and European
Union have cracked down on lax underwriting of securitised debt,
as the market shows little sign of a real revival to help
The International Organisation of Securities Commissions
(IOSCO) said in a report for public consultation on Thursday
that securitization was a valuable funding technique and an
efficient means of diversifying risk.
Policymakers want to see more securitisation to help lenders
raise funds and wean themselves off public support such as the
European Central Bank's trillion euro lifeline.
But issuance is still weak after the sector was tarnished in
the 2007-09 crisis when asset-backed securities (ABS) linked to
U.S. subprime mortgages turned toxic after many homeowners could
not keep up payments.
It triggered a global financial system meltdown with
taxpayers having to shore up banks on both sides of the
The EU and United States introduced "skin in the game" rules
in what was meant to be a globally coordinated response to
improve underwriting standards by forcing banks who originate
and sell such debt to keep some of it on their books.
This was at the behest of world leaders (G20) in 2009 as
part of wider crisis reforms but the IOSCO paper highlights the
difficulty of coordinating reforms among countries for a global
The aim of retention is to make banks think twice about
selling securities backed by poor quality assets by having to
keep 5 percent of the issuance.
IOSCO said the EU and U.S. approaches appear similar but the
exemptions allowed in the United States for very high quality
assets may give it an advantage over Europe.
"Our analysis points to differences in approach to these
requirements between jurisdictions which we see as significant,"
IOSCO said in its report.
Few other countries in the world have or plan to introduce
The transatlantic differences could bump up costs
significantly and impede cross-border issuance, IOSCO said.
"EU issuers could also be at a competitive disadvantage to
U.S. issuers as the exemptions expected to be available in the
U.S. will not be available to EU issuers securitizing EU assets
under current EU requirements," IOSCO said.
If industry feedback and experience confirm these fears,
IOSCO said it will "consider developing appropriate regulatory
responses and mechanisms to address those differences".
There was evidence of a revival in investor appetite among
U.S. institutions for securitised debt, it said.
"There is concern among issuers, in particular, that
securitization continues to be stigmatised by sub-prime crisis
events," IOSCO said.
"Parts of the securitization market in the United States
appears to be recovering, while the securitization market in
Europe still appears to be depressed. Some European issuers are
therefore offering ABS in the United States," the watchdog
New issuance to November 2011 was 207 billion euros ($260.05
billion) in Europe, down from a peak of over 700 billion euros
in 2008, IOSCO said.
Financial lobby groups are working on a new "quality label"
for bonds secured against bundles of assets and hope top-notch
ABS will be known as PCS or Prime Collateralised Securities in
The aim is to have a better stamp of approval on issuance in
a bid to win the confidence of investors and be accepted as
security by the European Central Bank.