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The identification of simple, transparent and comparable securitisations is central to the revival of a robust and stable securitisation market which benefits for the economy are warranted and timely.
The EBF has participated in the various consultations launched during the last 2 years by global and European policy makers. Those response papers contain the EBF position as regards the market characteristics, risks involved and prudential requirements of securitisations including detailed examples and illustrative data. For the sake of consistency, references are made in this response paper to key points extensively developed in the aforementioned EBF responses.
Regarding the identification of simple, standard and transparent securitisations, in the opinion of the EBF, the proposal presented by the EBA is sensible with a sound rationale and grounded on actual data that can, at large, achieve the objective sought of reviving the EU securitisation market without posing any threat to financial stability. Though the EBF still thinks that further recognition could be given to certain instruments like synthetic securitisations and asset-backed commercial paper (ABCP) provided that they meet the conditions requested.
A recurring reminder in EBF papers is the need to start the evaluation of new prudential proposals by analysing the overall effect that previous standards and regulations have had on the financial stability objectives altogether. In this vein, the regulatory reform has already changed substantially from the start of the crisis. The prudential treatment of securitisations is now much stricter including retention rules, more transparency and increased capital and liquidity requirements. It is time to identify portfolios and transactions which prudential treatment should be adjusted in order to allow a healthy flow of credit to the economy in a context of sufficiently controlled financial stability.
The policy reaction to the financial crisis has imposed indiscriminately tougher requirements, in particular in the case of capital, to securitisation transactions given that certain vehicles were at the core of the upsurge of financial instability. The problem is that this tightened-up requirements have been applied virtually indiscriminately across the range of securitization instruments. A closer look makes significant differences evident. The consultation paper of the BCBS and IOSCO is a step in the right direction of assessing the risk of instruments according to their risks.