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The European Union’s regulatory arm may propose that securitisations of loans to small businesses and consumers including car buyers should count toward the standard. The securities would have to be of "high quality" to count, ruling out those generated from "loans to credit-impaired borrowers", according to the document. And banks wouldn’t be allowed to count securities based on loans they or their affiliates had made. The commission plans concern how to implement an international rule published in 2013 by the Basel Committee on Banking Supervision. The measure requires banks to have enough easy-to-sell assets to survive a 30-day funding squeeze, and is set to begin phasing in next year.
Regulators identified the pre-crisis boom in securitisation as one of the prime causes of the turmoil that followed. Yet now, while toughening regulations, authorities are increasingly looking for ways to encourage the revival of the market to allow banks to expand lending and to boost the role of other institutional investors in financing businesses.
Under the EU plan, asset-backed debt would have to meet quality criteria to be allowed to count toward banks’ buffers. The commission document includes a limit that "only the most senior bond tranche in the securitisation" should count. Other requirements include that banks must apply a 25 per cent haircut to the value of the tranche, and that the principal issue size is at least €250 million. The tranche’s time to maturity could be as much as five years.