16 September 2014

Bloomberg News: Draghi’s ABS-market revival set for boost from regulators

A broader ABS market could improve companies’ access to financing and spur growth. That’s the goal behind the ECB’s plan to purchase “simple and transparent” bundled securities with underlying assets including residential mortgages, Draghi said. “What we’ve done is develop criteria of what we consider to be simple, transparent and consistent securitization,” Medcraft said. “We’re looking at providing a framework that actually assists the market.” Draghi said that the ECB will buy senior tranches -- the least risky -- of simple and transparent packaged securities. “We want to make sure that these ABS are being used to extend credit to the real economy,” he said.

 “If this market is seriously going to develop, it’s actually got to develop with non-bank investors,” Medcraft said. “The true market, particularly for high-quality securitization, should really be selling it to people who are trying to invest in high-quality fixed-income bonds.” About 181 billion euros of bonds backed by everything from auto loans to credit-card payments were issued in Europe in 2013 compared with a peak of 711 billion euros in 2008, according to data from the Association for Financial Markets in Europe. U.S. issuance totaled 1.5 trillion euros, down from a 2003 peak of 2.9 trillion euros, the data show.

“We need common global standards for sound and simple securitizations,” Michel Barnier, the EU’s financial services chief, said in a speech on Sept. 12. “If we get this right, I am sure there is real potential for increased growth.” 

As the push to revive the market builds momentum, EU and international standard-setters are working on as many as 19 measures that could affect demand, according to a draft EU document. Many will be rolled out in the next year. These include an overhaul by the Basel Committee on Banking Supervision of its capital rules for banks’ investments in ABS, in a bid to make the standards better reflect risk levels. Medcraft said that authorities should avoid measures that discriminate against asset-backed debt.

Full article

Draghi Statement 4 September 2014

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