EU Nations Advancing Rapidly on Plan to Revive ABS, Hill Says

  • Hill says nations may have securitization plan by Christmas
  • EU finance ministers to call for swift adoption of legislation

European Union nations may have a common plan by year-end for reviving asset-backed securities markets, European Financial Services Commissioner Jonathan Hill said in Brussels today.

Securitization is a key part of Hill’s proposal for a capital markets union, which seeks to diversify financing options in a Europe that relies mostly on bank lending. Hill said the plans need to get off to a “quick start,” particularly legislation that would allow preferential treatment of securities categorized as “simple, transparent, and standardized.”

“The working groups have gotten off to a very quick start and we might have agreement in the council by Christmas,” Hill told reporters ahead of an EU finance ministers’ meeting.

The EU ministers called for a “swift adoption” of rules around creating the securitization framework, in draft conclusions posted on the EU website and expected to be adopted Tuesday. The conclusions also urge the commission to report back on a number of cross-border issues that affect the financial sector, including in the area of directors’ liability and disqualifications.

EU nations and the European Parliament must each agree on positions before joint negotiations on final legislation can start. Hill urged the parliament to move swiftly so the measures can advance.

Hill will need to convince lawmakers that securitization is not a threat to stability, given the stigma attached to the practice after the financial crisis.

“I do expect that some colleagues will raise a couple of concerns with regards to the securitization proposal, simply because we had some issues with securitized paper during the financial crisis and this memory is still fresh,” ” said European Parliament member Markus Ferber, vice chairman of the legislature’s economic committee, in an e-mailed comment last week.

“If we want to revive securitization in Europe, then we need to learn from the lessons of the past,” said Anneliese Dodds, a U.K member of the assembly. “We in parliament will be scrutinizing the commission’s proposals in detail to make sure that they pass muster.”

Synthetic securitizations, which use derivatives to transfer risk, are another source of debate among lawmakers. They are a “different ball game” Ferber said. “Therefore, a different set of rules and capital treatments should apply to those.”

Hill said there are no current proposals on synthetic securitizations. “That’s something in future one could look at,” he said, adding that the commission’s proposals so far have been developed in close consultation with the European Central Bank.

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