Publication date: 10 October 2016
The importance of securitisation for jobs and growth in Europe
Perspectives on the post-crisis stigma and considerations in the STS debate
Investors, originators issuers and other market participants represented by the above signatories are committed to supporting a safe and sustainable securitisation market that serves the real economy in Europe.
Despite the strong performance of European securitisation through and since the financial crisis, the market has suffered in recent years. The association of the securitisation technique with the excesses and bad behaviour seen in the US sub-prime mortgage market has led to high capital charges and harsh treatment under liquidity rules – with regulatory costs for holding securitisation paper several times higher than other similarly-rated products. As a result, new issuance levels continue to be low and participants are leaving the market.
We believe the current European debate represents a unique opportunity for the rehabilitation of securitisation on the basis of an optimal framework that benefits the economy and incorporates lessons from the financial crisis.
Policymakers and the general public are justified to raise questions about the risks and benefits of seeking a revival of securitisation in Europe. In this paper we address topics that have been raised since the publication of the European Commission’s proposals on securitisation as part of the Capital Markets Union. We hope that this contribution can help to make a positive case for the rehabilitation of securitisation to the benefit of Europe’s businesses, borrowers and consumers. The signatories below – representing a range of participants in European securitisation markets – are convinced that:
- Securitisation can support SMEs and households in many different ways;
- A revival of sound securitisation can help diversify risks, thereby making the financial system more stable;
- A well-designed STS framework will deliver “simple”, “transparent” and “standardised” securitisations;
- Transparency and disclosure standards are already robust in the European market – further requirements should build on existing infrastructure and be carefully calibrated;
- The lessons of the crisis have been learned and reflected in EU regulations;
- Investor due diligence is important, but unnecessary duplication should be avoided as it disincentivises investment;
- Risk retention is important: the existing rules ensure alignment of interests and sufficient “skin in the game” for those who securitise;
- Tranching is common across all debt markets and an essential feature of the securitisation technique to meet investors’ needs.