The improvements should serve as a baseline for future negotiations. However, significant issues still need addressing:
- Complexity – the text still allows tranching to be part of the framework despite the enormous additional complexity and conflicts of interests that it brings, questioning the simplicity of the framework. It also fails to close the door to all synthetic securitisations.
- Risk retention – improvements have been made such as a higher retention rate for vertical retention and the removal of certain exemptions. However, provisions allowing supervisory discretion instead of a binding rule could be strengthened.
- Excessive maturity transformation in ABCP – We regret that underlying asset maturity has been significantly increased for some assets, creating a risk of excessive maturity transformation.
- SME securitisation – The overplayed argument that STS is mainly for SMEs falls flat in the revision of the CRR, where the text allows SME securitisations to be backed by a pool of exposures, only 70% of which qualify as SME loans, compared to 80% in the original proposal which was already low.
Christophe Nijdam, Secretary General of Finance Watch, said:
“After months of intensive debate the outcome is a compromise between various political groups and stakeholders’ interests. The financial industry is already lobbying for further weakening of the package; it is important that lawmakers at the next stage do not put the profitability of the European financial sector ahead of the important lessons from the financial crisis.”
Frédéric Hache, Head of Policy Analysis at Finance Watch, said:
“It is unclear how the proposal will benefit European SMEs. We must however ensure that it does not contribute to additional interconnectedness or create additional real estate bubbles.”
MEPs in the European Parliament’s ECON Committee today (8 December 2016) voted to adopt a text on the STS securitisation package.
The package consists of two sets of proposals: a regulation laying down common rules on securitisation and creating a European framework for simple, transparent and standardized securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (STS Proposal); and Proposal for a regulation amending Regulation (EU) No 575/2013 on prudential requirements for credit institutions and investment firms (CRR proposal).
The improvements in the ECON text include raising retention requirements in some cases, introducing sanctions against adverse selection, and increasing the scope for supervisors to intervene against asset bubbles.
For further information or to speak to an expert on the team, please contact:
Reza Opdebeeck, Communications Officer, Finance Watch
T: +32 (0)2 880 04 40