11 Apr 2014

AFME welcomes central banks call for fair ABS rules

The Association for Financial Markets in Europe (AFME) welcomes the joint paper on reviving securitisation by the European Central Bank (ECB) and the Bank of England (BoE), published today.

The paper says that concerted action, involving a range of policymakers and regulators, is needed to increase issuance of asset‐backed securities (ABS). AFME has long argued that securitisation has the potential to unlock the funding needed for Europe’s economic recovery. This joint paper outlines the practical steps needed to revive Europe’s securitisation market.

“Although policymakers at a senior level have been saying encouraging words about the economic benefits that Europe’s securitisation sector can bring, it is clear that time is running out for the positive regulatory signals needed on Liquidity Coverage Ratio and Solvency II. Europe risks sending mixed signals to the market,” commented Simon Lewis, AFME’s Chief Executive.

Actions needed

AFME believes that the following measures are needed to boost securitisation in Europe:

  • Recalibration of risk‐weightings for European high‐quality ABS
  • Lower capital charges for insurers holding asset‐backed securities (ABS) under the Solvency II proposals, which are calibrated to levels sufficient to attract actual investment by insurers compared to other instruments of comparable quality
  • Greater co‐ordination between regulators within Europe and internationally
  • A level playing field for securitisation – e.g. disclosure requirements – compared to other forms of fixed income instruments
  • Inclusion of a wider range of high‐quality securitisations as high‐quality liquid assets (HQLA) in the Liquidity Capital Ratio (LCR) – not just RMBS, but also securitisations backed by “real economy” assets, including credit cards, consumer loans, SME, auto loans and certain other high-quality assets.