Roberta De Filippis, the policy expert coordinating the European Banking Authority’s work on securitisation and covered bonds, has promised to raise the topic of a reduction in the risk weight floors for securitisation in the next round of talks at the Basel Committee but market participants remain dissatisfied with the slow speed of reform.
"A different design of the risk weight formula may [allow] the possibility to reduce capital non-neutrality without creating prudential concern," De Filippis said at the Global ABS conference in Barcelona on Tuesday. "That's why we supported [bringing] the discussion of a review of the risk weight formula to the Basel table."
De Filippis went on to set out the EBA's agenda regarding securitisation regulation, beginning with the finalisation of the framework for synthetic securitisation, including synthetic excess spread. The banking regulator will then move into a monitoring phase to see how recent changes filter through while assessing the development of the green securitisation market. Further work could then follow on the potential extension of the green bond standards to synthetic securitisation.
"I think the EBA has laid out the priorities extremely well and I think a lot of the work they've done has been technically very sound and very detailed and broadly speaking they're moving in the right direction," said Alex Batchvarov, head of international structured finance research at Bank of America, who was speaking on the same panel as De Filippis. "The question is about the speed of the movement. That's of course a problem for us. It's always been a problem since the global financial crisis."
Regulation has been a prominent theme of this year's Global ABS conference. Jonathan Hill, a member of the UK's House of Lords and former EU Commissioner for financial stability, financial services and capital markets union, delivered a keynote speech on Wednesday in which he called for Europe to reassess its attitude to financial risk, arguing that policymakers should pay more attention to the risk of stifling economic growth through overregulation.
The securitisation lobby did chalk up one small but potentially important victory recently when the European Parliament's Committee on Economic and Monetary Affairs agreed to support an ABS-friendly proposal in discussions with the European Commission and the Council of the EU, though it remains to be seen whether it will make it into the final legislation.
The initiative, promoted by MEP Gilles Boyer, would soften the impact of the introduction of the output floor, which is a measure designed to reduce inconsistencies in the capital treatment of securitisation by banks using different approaches. Market participants say the output floor could wreck the significant risk transfer securitisation market if its effect is not mitigated and welcome the so-called Boyer amendment.