The regulatory mood music around securitization has gone from Lacrimosa to Macarena. Europe's securitization industry met in 2011, 2012 and 2013 in Brussels, each time playing supplicant to the European regulators and politicians who held the future of the industry in their hands.
Little did they expect that by the end of 2014, central banks would be begging regulators to redraft securitization rules, and funnelling money (admittedly only €788m so far) into the market to buy bonds directly.
The industry might grumble about central banks crowding out private investors, the unstoppable, slow-motion car crash that was the Solvency II drafting process, or the details of risk retention, but there is no mistaking the favourable public vibes from the European Commission, parts of the European Parliament, the European Central Bank and the Bank of England.
Securitization has come so far down the road to rehabilitation that it is set to be a centrepiece of Capital Markets Union, a major initiative of the incoming Juncker Commission.
But that is where the risks lie. Regulators repeatedly underline securitization’s importance to the real economy. It can fund lending to small and medium-sized enterprises; it can fund infrastructure; it can give non-bank finance companies a way to channel funds to borrowers that need them.
The Bank of England said on Tuesday that: “Securitization markets enable non-bank financial institutions to provide finance to the real economy, as well as broadening the range of funding sources available to banks.”
This is such a regular refrain, particularly from the Bank and the ECB's governing council, that it hardly merits highlighting any more — this just happens to be the latest example.
But the industry might be better served in the long term by returning to an earlier argument — that securitization is just a capital markets tool like any other. It can be used for good or ill, low gearing or high, regulatory arbitrage or real economy finance.
There is a very real chance that the European economy will spend several years in stagnation, irrespective of which capital markets instruments are encouraged or discouraged. Rigid labour markets, ageing populations, poor wage and productivity growth all suggest tough times ahead.
Securitization, at its best, can unblock some channels of financing to all kinds of borrowers. If a block in financing is holding back growth, then healthy, vigorous securitization markets unimpeded by regulation might help.
But if borrowers are still trying to deleverage, or businesses see no opportunities for expansion, or individuals cannot support more debt on salaries that have been stuck since 2007, it will not change anything.
Perhaps forging a political consensus requires leaning on the truth a bit. The narrative that ties securitization to the real economy has probably won over a lot of sceptics, and there is more of that to do.
Easier treatment from Basel and a revisit of Solvency II capital weights still needs to be won to revive private sector demand for securitizations, and eyes need to be kept on that prize.
But it might be wise to stop talking up the real economy benefits quite so hard. A revived securitization market might help, but it’s better to over-deliver than over-promise.