Since the crisis, the European securitization market has been pleading unfair treatment. Being tarred with the same brush as US subprime meant the product has had to fight against a huge tide of regulation — and it still hasn’t made much difference.
As the European market gathers for its annual Global ABS conference, the bugbears of the conference are eerily familiar.
Basel capital charges, Solvency II capital charges, investor due diligence, the structure of risk retention, and credit rating regulations are all troubling the market — for more or less the fifth year running.
There has been progress. Instead of trying to kill the market, policymakers are looking for ways to revive it. Instead of toughening up collateral rules for ABS repo, as it did in 2011, the European Central Bank is now trying, slowly and haltingly, to buy up the market.
And there is a new set of buzzwords to add to the litany of regulatory precepts. As central bankers and policymakers keep saying, securitization must be standardised, simple, transparent, and comparable.
Issues meeting these criteria get a bit of a regulatory reprieve. But issuers that don’t, in the words of one panellist at Global ABS, are “thrown to the wolves”.
The market will roll with the punches — as it is doing with risk retention and loan level data requirements — but it is one more item for the long laundry list of lobbying topics, and it isn’t going away. Panel after panel can call for regulators to avoid cliff effects, or to tweak the details, and if they’re lucky, a sympathetic policymaker will be in the audience.
But the big, nasty, market busting regulations probably aren’t going away. Solvency II is widely despised across the capital markets, and has taken more than seven years to be firmed up. It won't be officially reviewed until 2018, and until then, it will unavoidably continue squashing insurance company investments in securitization.
But ever optimistic, this year Global ABS has something new to pin its hopes on. The European Commission’s Capital Markets Union project has securitization as its centrepiece, and the Commission is due to produce a Green Paper setting out its approach to the market in September.
Hopes are high that this could produce another round of regulatory easing, or at least a more consistent approach stitching together CRD IV, Solvency II, AIFMD, CRA III and any other random collection of letters and numbers into a harmonised package.
Just like every year, Global ABS is hoping that next year, the market can meet and talk about doing deals, not coping with regulation. This time it really could be different.