ECB and BoE Call for Easing of Asset-Based Securities Rules

The European Central Bank (ECB) and the Bank of England (BoE) have called on regulators to support and promote the asset-backed bond market and said that rules to promote the safety of the financial system shouldn’t impair the securities.

Officials “responsible for the regulatory treatment can change incentives to participate in the asset-based securities (ABS) market,” state the central banks in a just-published joint paper. “It would be important that the authorities seek to ensure that new regulations at global and European Union [EU] levels do not act to the detriment of the securitisation market.

“Despite its long-term social value, securitisation today suffers from stigma, reflecting both its adverse reputation among investors and conservatism among regulators and standard-setters.”

The ECB and BoE add that while a “prudently designed” ABS market has the potential to improve efficiency in resource allocation and risk sharing, rules to address shortcomings in the securities revealed by the financial crisis may be “unduly conservative.” Officials from both central banks are in Washington for an International Monetary Fund (IMF) meeting along with finance leaders from the Group of 20 nations.

“The ‘high-quality’ segment of the securitisation market should aim to be more resistant to market stress, thereby providing banks with a resilient form of funding,” the ECB and the BOE said in the statement.

“But it is also important to support more junior tranches of safe and robust securitisation markets,” and officials should improve availability of data and analytics to improve standards and broaden the investor base.


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