The Commission, according to a document seen by Reuters, is willing to take into account "possible future increases in the liquidity of a number of securitisation products following further differentiation and standardisation of these products" when it sets the standards for high quality assets in the Liquidity Coverage Ratio (LCR) as it implements the Basel 3 framework.
"AFME has long argued that a broad, rather than a narrow, approach to the calibration of the LCR is the most appropriate for liquidity regulation", said Richard Hopkin, head of the securitisation division at AFME, an industry body. "Including a wider range of real-economy assets will also help securitisation to play its role in funding Europe's economic recovery."
If included in the LCR, banks could be encouraged to buy RMBS and ABS, since they will then serve a regulatory, as well as economic purpose, and this could be crucial in reviving the market.
The Commission also said in the document that "rules on retention, high quality standardisation and transparency should be consistent in order to avoid regulatory arbitrage across countries and sectors". It said it will work with international standard-setters to ensure differentiation of "high" quality securitisation products and to explore a possible preferential regulatory treatment for such products compatible with prudential principles.
If a broader set of securitisations get included in the European version of the LCR, this would answer analyst calls for a shift in the regulatory rhetoric towards securitisation.
The document from the EC, a letter to the European Parliament and Council of Ministers, echoes the ECB's long-standing campaign to reform securitisation regulation. Last week, the ECB's Mario Draghi and Yves Mersch both reiterated calls to start reviving plain vanilla securitisation, with Mersch saying: "It is critical that the regulatory treatment of asset-backed securities is based on real data and not the legacy of the US sub-prime disaster".
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See also: AFME: Securitisation report argues for broad approach to liquidity
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