Europe's ABS Revival Takes Step Forward as States Agree on Rules

The European Union’s push to revive the asset-backed securities market took a step forward as member states reached a preliminary agreement on rules intended to promote simple, transparent products.

The European Commission, the EU’s executive arm, set out its plan in September for overhauling the securitized debt market, laying down criteria for a class of notes that will merit lower capital charges on holders as part of a broader effort to expand financing sources for companies and spark growth.

The proposed regulations, which amend existing laws governing banks and insurers, cover all aspects of asset-backed debt, from origination to capital charges, supervision and risk retention. The centerpiece is a new class of “simple, transparent and standardized” products eligible for preferential regulatory treatment.

“These proposals aim to relaunch the securitization market by promoting simple, transparent and standardized securitizations,” Pierre Gramegna, Luxembourg’s finance minister, said on Wednesday. “The objective is to contribute to the financing of the economy and hence to the creation of jobs and growth.”

EU finance ministers will take up the issue on Dec. 8. If they formally approve the negotiating position set out on Wednesday, talks on a final version of the bill with the European Parliament could begin early next year, according to a statement issued by Luxembourg, which holds the EU’s rotating presidency.

The parliament hasn’t started working on its negotiating position.

According to Nov. 30 documents posted on an EU website, the deal includes a section on how to handle capital treatment for some investors who retain senior positions on synthetic securitizations that are backed by loans to small and medium-sized enterprises, especially where there are ties to government or promotional bank guarantees.

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