Former ECB president Mario Draghi’s long-awaited report on European competitiveness, written for the EU Commission and published on Monday, has added some morsels of meat to the bones of future reform of securitization. Expect advocates for the asset class to make hay.
These morsels are a good first step, providing the lobbyists for the industry with some welcome ammunition when they eventually get into discussions on the nitty gritty of the future of securitization regulation with regulators and policymakers.
The report, EU Competitiveness: Looking Ahead, is wide-ranging in its attempts to foster greater innovation, competitiveness and a stronger economy. But few industries will have been quite so pleased about the implications of its publication as securitization, which has felt quite trodden on by rule makers pretty much since the global financial crisis of 2008.
Their excitement is born out of the fact that this report is different to those that have preceded it. The paper had specifics — a clear route to revitalise the market — not just a “pious hope” that one day it would return, as Ian Bell, CEO of PCS, said on Tuesday.
Moreover, it was written by someone who had done their homework. Securitization is hampered by “regulatory hurdles”, Draghi wrote. Capital charges need to be reduced, while due diligence, transparency and disclosure regulations are too heavy-handed.
It was almost like an experienced teacher reviewing their fresh-faced new colleagues’ draconian discipline of a classroom. “Yes, the room is quiet, but what good has come of it?” the older teacher might ask.
Barely a peep has come out of securitization in 15 years, with issuance volumes for this powerful funding tool having been depressed for more than a decade, but no one is really benefitting from this situation — certainly not the EU economy.
Of course, the devil will be in the detail. The EU project is known for producing fudge.
But thanks to Draghi and the Commission, the market has some “guardrails”, in the words of one banker, to forge a path towards a functional, high quality market.