European banks are warning that the effects of the European Central Bank’s €1.1tn quantitative easing will be blunted by tough capital rules designed to curb risks in securitisations.
Anshu Jain, co-chief executive of Deutsche, and Frédéric Oudéa, chief executive of SocGen, told a board meeting of the Institute of International Finance, a trade association, that the industry should push for the rules to be revised.
They said this would encourage more securitisation, ease the shift of assets from constrained bank balance sheets to capital markets and make the plan announced on Thursday by European Central Bank president Mario Draghi to buy €60bn a month of mainly public-sector bonds more effective.
Basel III capital rules, introduced in 2010 after the financial crisis, gave very high risk weights to the portion of a securitisation that banks must keep on their books. The risk weight system gives a 0 per cent risk weight to safe assets such as a US Treasury bond, meaning banks do not have to hold capital against it, but up to 1250 per cent risk weights for some securitised assets, meaning banks would have to hold 12.5 times the normal amount of capital against the asset, making it hard to make a good return.
“Is it right that banks have to hold more capital than the whole value of a [securitisation] position? It is absurd. It is basically a penalty rate,” the chairman of another of the biggest European banks said on the sidelines of the forum meeting.
“There is a disconnect between economic policy makers and regulators,” said Douglas Flint, chairman of HSBC. “Europe wants a capital markets union and more securitisation, but pension funds and insurers ask: ‘Why would I want to do that? The regulatory environment is disincentivising investment in these areas’.”
The Federal Reserve has devoted a large portion of its bond-buying in the US quantitative easing programme to mortgage-backed securities. Economists see benefits in buying an instrument that is closer to the “real economy” than US Treasury bonds.
The committee of regulators that draws up the rules has come up with some changes but they do not go far enough for the European banks.
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