Fabrizio Campelli, the head of Deutsche Bank's corporate and investment bank, called for further reforms of the European regulatory framework for securitisation during a keynote speech at the TSI Congress industry event in Berlin on Thursday. He argued that a well-functioning securitisation market was a crucial element of the EU's Capital Markets Union and specified three changes he would like to see.
The speech was the latest in a series of demands for change made by senior figures in European finance and politics, which have been growing louder as market participants have detected a softening of the stance of some policymakers towards securitisation, particularly in the governments of Germany and France.
As recently as September 13, the French and German finance ministers, Bruno Le Maire and Christian Lindner, asserted in an opinion piece in the Financial Times that the EU's sluggish market for securitisations should be revitalised.
"Europe has already agreed upon targeted amendments to how we treat securitisations and more could be adopted in this legislative cycle," they wrote. Last year, the French and German finance ministries sent a joint paper to the European Commission that argued for a relaxation of the regulatory framework around securitisation.
"We cannot talk about implementing the Capital Markets Union without highlighting the fundamental role of securitisation," said Campelli on Thursday. "It's essential to expand bank lending, diversify risk, accelerate the velocity of capital across the continent overall, [and] contribute to an efficient financial market. ... However, once again, the current securitisation framework has been implemented in ways that are really detrimental to its development."
In the speech, the DB board member picked out the capital requirements for banks and insurance companies and the reporting rules for private transactions as the main obstacles.
With regard to the capital requirements regulation for banks, he said that the temporary reduction of the so-called p-factor – a tweak that reduces the amount of capital that must be held against securitisation positions, especially those that qualify for the simple, transparent and standardised label – should be followed by a permanent change, arguing that a high p-factor was no longer necessary under the latest bank capital regime.
He then moved on to the due diligence rules, under which issuers of securitisations must produce transaction data using templates designed by the European Securities and Markets Authority, although many market participants say investors do not find the templates useful.
"The current set-up, which has very detailed minimum requirements set by ESMA, is just not attuned to the needs of the market and puts the EU market players – both originators and investors – in a very disadvantageous position," said Campelli.
Finally, he addressed the capital requirements faced by insurers holding positions in securitisations, which have been blamed by market participants for effectively excluding insurers from participating as investors in ABS.
"The market for EU securitisation could be significantly boosted by improving the capital treatment for insurers, as currently, under Solvency II, the capital requirement for most securitisations is multiple times higher than other assets of the same credit quality," he said. "This will obviously limit the ability for insurers to play an active and important role in funding the growth of these markets across our continent."
Although Campelli is not the first to make such demands, attendees at the conference said the recent comments in support of securitisation by powerful figures in Europe gave them some hope that change could finally be on the way.