Response to discussion on simple standard and transparent securitisations
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Securitisations should be treated more favourably in case market participants use the freed-up liquidity and capital to provide additional capital to the real economy.
While synthetic securitisations have their merits to achieve capital reliefs, they should be dealt with in a different context, at least as long as they don’t or are rightfully not expected to have a positive impact on the real economy (i.e. as long as banks are still under-capitalised synthetic securitisations can broadly be viewed as a means to delever, hence, the primary beneficiary would be the bank).
Yes
Would the default definition as per Article 178 of the CRR be more appropriate?
No.
Hence, a certain minimum level of granularity should not be established as a mandatory standard, while full transparency about the actual level of granularity should mandatorily be required.
Does the threshold value proposed under Criterion B pose an obstacle to the structuring of securitisation transactions in any specific asset class? Would another threshold value be more appropriate?
We strictly oppose the idea of establishing a certain minimum level of granularity. Mandatorily requiring e.g. a granularity of not greater than 1% would meaningfully impede emerging non-bank players (as i.a. discussed in Working Paper 2014/25; EIF Research & Market Analysis; Institutional non-bank lending and the role of Debt Funds) in their effort to intermediate between investors and the real economy. A 1% hurdle-rate would require new players to acquire at least 100 new clients for any inaugural transaction, which would represent a meaningful impediment.
In order to create the right incentives based on a ‘differentiation in prudential treatment’ one should rather use criteria by which the type of underlying asset experiences a desired surge in demand, such as SME loans or bonds.
Establishing high standards, e.g. in terms of credit quality, would favour securitisations of high quality assets, which could have sold to market participants also on a stand-alone basis. The resulting biased market behaviour would severely limit the broader support of the real economy.
If the aim is to increase the room for a ‘differentiation in prudential treatment’ one should take those asset classes into consideration for which it is economically in particular desirable to stimulate their demand (such as financing SME).
Question 2: Should synthetic securitisations be excluded from the framework for simple standard and transparent securitisations? If not, under which conditions/criteria could they be considered simple standard and transparent?
Yes, since securitisations are rightfully framed already by the executive summary, stating (i) in the first paragraph that securitisations are a ‘funding technique’ and (ii) in the last paragraph that securitisations are ‘providing an alternative funding channel to the real economy and enhanced risk-sharing’.Securitisations should be treated more favourably in case market participants use the freed-up liquidity and capital to provide additional capital to the real economy.
While synthetic securitisations have their merits to achieve capital reliefs, they should be dealt with in a different context, at least as long as they don’t or are rightfully not expected to have a positive impact on the real economy (i.e. as long as banks are still under-capitalised synthetic securitisations can broadly be viewed as a means to delever, hence, the primary beneficiary would be the bank).
Question 3: Do you believe the default definition proposed under Criterion 5 (ii) above is appropriate? Would the default definition as per Article 178 of the CRR be more appropriate?
Do you believe the default definition proposed under Criterion 5 (ii) above is appropriate?Yes
Would the default definition as per Article 178 of the CRR be more appropriate?
No.
Question 4: Do you believe that, for the purposes of standardisation, there should be limits imposed on the type of jurisdiction (such as EEA only, EEA and non-EEA G10 countries, etc): i) the underlying assets are originated and/or ii) governing the acquisition process of the SSPE of the underlying assets is regulated and/or iii) where the originator or intermediary (if applicable) is established and/or iv) where the issuer/sponsor is established?
We are of the opinion that regulations relating to standardisation would lead to the desired outcomes even if they were limited to the issuers.Question 5: Does the distribution of voting rights to the most senior tranches in the securitisation conflict with any national provision? Would this distribution deter investors in non-senior tranches and obstacle the structuring of transactions?
Intentionally left blank.Question 6: Do you believe that, for the purposes of transparency, a specific timing of the disclosure of underlying transaction documentation should be required? Should this documentation be disclosed prior to issuance?
Yes, this documentation should be disclosed prior to issuance.Question 7: Do you agree that granularity is a relevant factor determining the credit risk of the underlying? Does the threshold value proposed under Criterion B pose an obstacle to the structuring of securitisation transactions in any specific asset class? Would another threshold value be more appropriate?
This question is too general, which becomes obvious when considering extreme rating scenarios of the underlying assets. A transaction can very well be ‘simple and transparent’ while being less granular. It could also be of high credit quality while being not granular at all.Hence, a certain minimum level of granularity should not be established as a mandatory standard, while full transparency about the actual level of granularity should mandatorily be required.
Does the threshold value proposed under Criterion B pose an obstacle to the structuring of securitisation transactions in any specific asset class? Would another threshold value be more appropriate?
We strictly oppose the idea of establishing a certain minimum level of granularity. Mandatorily requiring e.g. a granularity of not greater than 1% would meaningfully impede emerging non-bank players (as i.a. discussed in Working Paper 2014/25; EIF Research & Market Analysis; Institutional non-bank lending and the role of Debt Funds) in their effort to intermediate between investors and the real economy. A 1% hurdle-rate would require new players to acquire at least 100 new clients for any inaugural transaction, which would represent a meaningful impediment.
Question 8: Do you agree with the proposed criteria defining simple standard and transparent securitisations? Do you agree with the proposed credit risk criteria? Should any other criteria be considered?
We neither think that a certain minimum credit quality nor a certain minimum granularity should be imposed on market players, while the corresponding information should explicitly be made transparent.In order to create the right incentives based on a ‘differentiation in prudential treatment’ one should rather use criteria by which the type of underlying asset experiences a desired surge in demand, such as SME loans or bonds.
Establishing high standards, e.g. in terms of credit quality, would favour securitisations of high quality assets, which could have sold to market participants also on a stand-alone basis. The resulting biased market behaviour would severely limit the broader support of the real economy.
Question 9: Do you envisage any potential adverse market consequences of introducing a qualifying securitisation framework for regulatory purposes?
In case the new framework sets the wrong incentives it will be very challenging to reverse a then most likely quickly learned new market behaviour.If the aim is to increase the room for a ‘differentiation in prudential treatment’ one should take those asset classes into consideration for which it is economically in particular desirable to stimulate their demand (such as financing SME).