As regulators struggle with the task of defining the so-called Liquidity Coverage Ratio (LCR), the deadline set under the capital requirements directive (CRD IV) has been pushed back three months to September. Insiders say that could allow more time to get more securitised products approved as liquidity buffer when the new liquidity rules are finally announced.
Securitisation might be a useful way to boost the eurozone economy as it could increase the supply of loans available to cash-starved companies. At the moment, under the proposed Basel III rules, only certain residential mortgage-backed securities (RMBS) qualify - those in the lower tier of the LCR’s second level - and even these are subject to a 25% haircut. But members of the securitisation industry say those parameters are too narrow, especially with the notion of high-quality securitisation (HQS) being introduced by European legislators. The sector wants better treatment through lower capital charges - meaning buyers have to hold less capital against their ABS investments - and wider inclusion in the liquidity buffer.
There are signs that these pleas for change are being heard. “If safe and transparent products are identified, then the Commission is keen on considering this in the prudential treatment of securitisation,” said Chantal Hughes, spokeswoman for Commissioner Michel Barnier. The extension to the deadline also coincides with that of the parallel stream of work that the European Banking Authority is carrying out to define high quality assets, after being tasked by the Commission earlier this year. This extra time would allow the Commission to assess the EBA’s findings, and even incorporate HQS principles into the LCR.
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