The European Commission has published long awaited proposals to boost the role banks play in the securitisations market to meet the EU\u2019s critical funding needs. <\/p>\n
The measures are meant to enable banks to free up capital held on their balance sheets and thereby encourage greater financing and investment across the EU. <\/p>\n
They are part of a broader shake up of Europe\u2019s capital markets that have received much attention from policymakers over recent years due to rising geopolitical tensions.<\/p>\n
Simplified framework<\/p>\n
In a press briefing, financial services commissioner Maria Lu\u00eds Albuquerque outlined the ambitions of the proposals.<\/p>\n
\u201cThese proposals will contribute to reviving the EU securitisation market by simplifying and enhancing our regulatory and prudential framework while preserving robust safeguards to ensure financial stability,\u201d she said. <\/p>\n
\u201cThis review can contribute to deepening our capital markets and financing the EU\u2019s strategic priorities, in line with the Savings and Investments Union objectives.\u201d<\/p>\n
Broadly speaking the reforms are meant to ease prudential standards, reporting requirements and due diligence that applies to banks when they do securitisation. <\/p>\n
Among other things, the update sheds light on how the commission thinks banks should calculate capital requirements in relation to securitisation deals. <\/p>\n
It proposes that amendments be made to the capital requirements regulation which sets out how much capital lenders need to hold for their securitisation exposures.<\/p>\n
The European Commission aims to allow banks to reduce the amount of capital they hold when they do securitisations of less risky loan portfolios. <\/p>\n
These proposals will now be submitted to the European parliament and the council for their consideration and adoption.<\/p>\n
LCR amendments<\/p>\n
The European Commission also published and put out to consultation draft amendments to the liquidity coverage ratio.<\/p>\n
This sets out the amount of liquid assets that a bank must hold to meet short term liquidity needs. <\/p>\n
In a note industry body Prime Collateralised Securities welcomed the proposed amendments and said they should allow a greater range of securities to be held by banks to meet their short-term liquidity needs. <\/p>\n
The publication of the LCR amendments surprised many experts who expected any measures to be announced at a later date.<\/p>\n
However others have warned the proposals could have the unintended consequences of making securitisation more costly and complicated. <\/p>\n
Adam Farkas, chief executive of the Association for Financial Markets in Europe, called the proposals \u201ca step in the right direction\u201d.<\/p>\n
But he added: \u201cIt is crucial to avoid introducing any measures that may inadvertently undermine the core objective of the reform to stimulate both demand for securitisation \u2014 through a growing investor base \u2014 and supply.\u201d<\/p>\n
Concrete examples where Afme urged caution include changes to bank capital treatment that would unintentionally inflate capital charges beyond current levels under the current regime for banks in any role. <\/p>\n
Farkas added: \u201cAs it is the first legislative initiative of the Savings and Investment Union strategy, it will be important that co-legislators take an evidence-based approach to the upcoming negotiations to help rebalance the financing structure of Europe\u2019s heavily bank-based economy toward capital market.\u201d<\/p>\n
Capital markets union<\/p>\n
The Savings and Investment Union represents the EU\u2019s new plans for creating a capital markets union across the bloc.<\/p>\n