10 February 2015

Reuters: Securitisation to get a kick out of European Commission's market proposal

This time last year the securitisation industry had little to look forward to, trapped between the threat of capital requirement hikes and striking competition from other funding tools.

Now, it may find itself at the core of Europe's regulatory revamp, which promises to loosen the post-crisis clampdown on banks and markets.

On February 18, the European Commission will publish a green paper on a capital markets union - aiming to slash the region's reliance on banks and boost financial markets to diversify funding and transfer risk across different parts of the system.

And regulators seem evermore convinced that securitisation above all, or at least its safer end, could be the transmission mechanism to get funds flowing from investors to SMEs and consumers.

For this reason, the upcoming proposal is likely to feature a separate, dedicated paper on the asset class and how to revive it safely, a source close to the talks told IFR.

"Securitisation will play an enormous role in accelerating the EU capital markets initiative," said Lakestone Capital's founder Bogdan Patriniche at a conference organised by Finance Watch on Wednesday.

"We need to broaden and deepen our capital markets - and this is what securitisation can do: it's a bridge from banks' balance sheets into the markets," added AFME's head of fixed income Richard Hopkin.

"It's not a magic wand, it's not going to solve Europe's problems overnight, but it has very important contributions to make," he said.

In a leaked draft of the green paper, the commission quotes AFME issuance data showing that 2013 issuance was less than a third of 2007 levels - at EUR180bn against EUR594bn respectively.

The numbers show how issuers have been pushed away from a market that now looks key to economic recovery.

"If SME securitisation could be returned - safely - even to half way back to the levels they were in 2007, this could be equivalent to some EUR20bn of additional funding," said the new financial commissioner Lord Hill.

Full article on Reuters

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