Moreover, a plan that was intended as a catalyst for the recovery of Europe’s struggling market for asset-backed securities could be its death knell, if key provisions in the European Parliament’s proposals make it into the final version of the framework.
The framework itself was not above criticism. The argument that more securitization would increase the volume of lending to SMEs has always seemed fragile, given it relies on banks choosing to use their new balance sheet capacity to actually lend to that sector. That is far from a given.
But political criticism of the industry was not led by reasoned, logical examination, nor was it grounded in any evidence.
Instead, many of the politicians took the easy shortcut of characterising the European ABS market as a US subprime crisis waiting to happen, ignoring self-led industry measures since the crisis to encourage prudent lending standards and the better alignment of issuer and investor interests.
Above all, they ignored the market’s proven track record of stable performance through and since the financial crisis. It is a hatchet job of politicised financial regulation.
The industry, along with the European Commission and the European Council, which both have adopted a warmer stance towards securitization, must now work to ensure the most crippling elements of the parliament’s proposals do not find their way into the final text.
But negotiating with the parliamentarians will not be easy. If the last few months are anything to go by, the louder industry advocates shout, the more deaf those politicians become.