10 November 2015

資本市場同盟のアクション・プランにおける証券化市場活性化策、複雑性と不確実性が課題

The concept of securitisation is simplicity itself: pool a collection of small loans into a large `special purpose vehicle’ (SPV) and sell participations to major institutional investors so that citizens’ savings are effectively on-lent fairly directly to SMEs, households etc. There is no need for large lumps of bank capital to act as a risk buffer. However, the term `securitisation’ became `toxic’ in the financial crash after 2007 when US sub-prime mortgages inflicted massive losses on European investors - in sharp contrast to the minor losses on European securitisations. 16% of the worst AAA US securitisations defaulted versus just 0.1% of their EU counterparts.

However, the reputational damage was done and EU securitisation volumes still languish at half their pre-Crash levels. So a key CMU goal is to boost annual volumes by €100-150 billion or more – a powerful complement to the €315 billion investment fund. The February 2015 Consultation on what needs to be done to revive this market attracted 120 responses to define “simple, transparent and standardised” (STS)securitisation– thereby earning more `appropriate’ capital treatment. The “vast majority” of the respondents favoured this approach and a 76 page Regulation has now been proposed.

What does 'simple, transparent and standardised' securitisation mean?

'Simple securitisation':

·         Assets in the package must be homogeneous – so all of a similar type

·         No “re-securitisations”

·         Loans must have a sufficient credit history to measure default risk.

·         There must be a “true sale” from the originator to the SPV 

'Transparent and standardised securitisation':

·         Loans must have been created using the same lending standards - no "cherry-picking"

·         Retention of at least 5% of the loans by the originator.

·         Documents must detail the payment cascade to different tranches

·         Data on packaged loans must be published on an ongoing basis.

·         The contractual obligations, duties and responsibilities of all key parties to the securitisation must be clearly defined.

This all seems sensible enough to meet the goals – but are 76 pages of Regulation really necessary to spell this out? Unfortunately, today’s market participants have to live with a black inheritance of public distrust from their predecessors of a decade ago. In an attempt to overcome this legacy, the private sector set up the Prime Collateralised Securities (PCS) initiative “to strengthen the asset-backed securities market as sustainable investment and funding tools for both investors and originators with the aim to improve market resilience in Europe, promote growth in the real economy and at all times maintain the standards of quality, transparency, simplicity and liquidity.” The membership includes a wide array of issuing banks, investors, auditors and lawyers – though some names are notably absent. The objective is clear: to set up a private, “29th regime”-style label which marks a `gold standard’ of securitisation.

So it is disturbing that PCS had to make some detailed and specific criticisms that are “serious enough to have the potential to derail the chances of market recovery altogether”. Moreover, Societe Generale CEO Oudéa (who is also Chair of the French Banking Federation) said these proposals are likely to shrink the securitisation market in the short term. PCS is very positive about much of the plan but has pointed to five key problems:

1.       There appear to be about 57 components of the STS definition and the issuing bank has to attest that the issue conforms to all of them. But some are the subject of future regulatory interpretation so the issuer cannot know about them at the moment of attestation. (NB: The sanction for failure to meet the requirements can run up to 10% of the annual turnover of the parent of the issuer – quite a dis-incentive in these days of mega-fines.)

2.       PCS cites “the rejection of a formal role for independent third party certification agents in favour of self-attestation and individual investor due diligence.” Reportedly, this approach was unanimously rejected by all stakeholder in the consultation.

3.       The administration of the scheme is left with national regulators - surely a recipe for divergence and thus fragmentation.

4.       The maturity limitations – at a weighted average of no more than two years for  Asset Backed Commercial Paper (ABCP) - “are likely to close down most of that market.”

5.       PCS argues that the EBA proposals for bank capital weightings under CRR are likely to keep banks away as there is a hugely higher capital charge for holding the securitisation rather than the underlying assets.  

However, PCS has set out a constructive proposal to resolve many of these difficulties. This also tackles the problem of the `punitive treatment’ of European banks versus banks operating under US rules. It would indeed be a bizarre outcome if a Capital Market Union designed to bolster European finance actually made the EU economy more dependent on the US.

© Graham Bishop