EU in Another Push to Revive Securitisation

Michel Barnier, the European Commissioner for Internal Market and Services made the anticipated announcement today that the EU will look to soften capital reserve requirements for European banks and insurance companies that hold structured debt instruments.  Earlier today, Barnier described a renewed initiative to lower these expensive capital controls so that securitization structures will once again be economically feasible for these important segments of the institutional investment community in Europe.  The thought also seems to be that, if the banks and insurance companies can be brought back into the markets, the large private and public pension funds in Europe will also find their way back to the table.

Soewhat disappointing was the roll out of the now tired slogan, that the new rules would be focused solely on the “good kinds” of securtisation and of course not on the “bad kinds” of securitisation.

While we understand that the objective is to assure the general public that this will not signal a return to the reckless days of the past, what drives us a little crazy here at Securitization Monitor is the failure of many to recognize that it’s not the securitization structure that causes problems….. it is always the collateral.  If what the Commissioner meant by his comments is that the new rules will be geared towards better classes of collateral then we applaud the initiative.  On the other hand, we have seen too many cases where the structures and not the collateral are under attack by regulators.  A currently strong example of this is the “across the board” treatment of retention schemes for CLO’s.  We would simply prefer a little more thought behind the selection of culprits (i.e. too often the structures) and a little less of the broad brush approach.  If the regulators could commit to such a strategy, we believe it would have the most important impact on restoring the EU structured finance markets.

It really should not be that hard to come to understand this market well enough to make this important distinction between “structures” and “collateral”.