* 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 debt
By Huw Jones
LONDON, Dec 19 (Reuters) - Global and European regulators have softened proposed new rules for securitisation in an attempt to kick-start a financing tool tarnished by the financial crisis.
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 stricter standards.
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 market.
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.