Despite considerable effort by some lawmakers, the compromise integrates only some of the lessons for the financial crisis, and in a weaker form than we would have liked to see. While it shows some progress on earlier proposals, it falls short of being a game changer or of promoting truly simple securitisation.
The positive aspects include the ban on re-securitisation, despite its many exemptions. We also welcome the data repository of content for securitised products, which should benefit investors and supervisors.
Unfortunately, at 5%, the risk retention requirement is too low to provide a meaningful disciplining effect for banks. We recognise that lawmakers resisted industry pressure to reduce this even further and that they have provided for ESRB monitoring. Level 2 implementation must ensure that retention requirements can be lifted quickly and significantly where ESRB monitoring reveals that excessive risks are building up.
We regret that some types of synthetic securitisation will be allowed in the STS framework and hope this will not be widened in the future.
Finance Watch’s Head of Policy Analysis, Frédéric Hache, said:
“Overall, despite the original intention to regulate shadow banking, we note that the policy response to the lessons of the crisis has been mainly carrot and very little stick. The public will now be relying on the ability of EU supervisors to monitor risks and take rapid action to avoid repeating past failures.”
For further information, please contact:
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- “Securitisation: agreement struck between MEPs and Maltese Presidency” (EP press release, 30 May 2017)
- Finance Watch webpage on STS Securitisation