Securitisation: a key role in stimulating credit?
Given the importance of SMEs to the euro area's economy, it is crucial to help them access credit to consolidate the region's recovery. A first step has been taken by the ECB, encouraging private sector loans via TLTROs and announcing technical preparations to start an asset-backed security purchase programme. A more developed and better functioning securitisation market would be a source of additional financing and will also help to pass on monetary policy by repairing the credit channel.1 We shall therefore go over the main obstacles to this market's growth and the solutions proposed by several organisations.2
The hurdles faced by the securitisation market can be classified into two groups. The first is made up of endogenous barriers, inherent in the market's structure per se, such as the high cost of structuring these products and other operational restrictions. The second group, with a greater impact on the market's development, is made up of regulatory obstacles. The capital requirements demanded to hold ABS (Basel III for banks and Solvency II for insurance companies) are too strict compared with other assets with a similar risk profile. The short-term liquidity ratio required by Basel also harms SME loan securitisation as these are excluded from the definition of liquid assets (more benevolent for the senior tranches of mortgage-backed securities).
Taking into account the obstacles that make it difficult for this market to develop, several organisations have decided to differentiate high quality assets (simpler, more transparent and with less risk) so that these can be treated more favourably in regulatory terms. Fewer capital requirements and their inclusion as liquid assets would make this distinction even more beneficial, encouraging the supply of such products and widening the investor base. This would also help to erase the stigma still attached to such assets after the key role they played in creating the financial crisis, especially in the US.
Given just how important this market could be to reactivate the flow of credit to the private sector, it is important for the measures taken to be aimed at creating a more efficient market that aligns the incentives of the different agents in order to improve transparency and standardisation, ensuring that fair rather than special regulatory treatment is provided in accordance with the risk associated with each asset.
1. See the Focus «The securitisation market: from hero to villain, and vice versa» from MR06 for more information on what they are and how they operate.
2. See «The case for a better functioning securitisation market in the European Union», by the BCE and BoE and «Capital market development: SME financing in the Euro Area» from the July report by the IMF.
