Europe's Securitization Bankers Say They're Stifled by New Rules

Post-financial crisis regulation means that the region's securitization market remains a shred of what it once was.

Sunny Barcelona.

Photographer: David Ramos/Bloomberg

Two decades ago, Europe's asset-backed securities (ABS) market was in its infancy. It has not aged gracefully.

On a panel at the annual gathering of securitization bankers in Barcelona on Wednesday, the industry's old guard reminisced about how things were when they met for the very first time in Cork, Ireland, in 1996. Securitization, a technique for transforming groups of loans into tradable bonds, provides financing to banks and companies and fees for investment bankers. 

Much has changed since the first gathering. The market expanded rapidly in the run-up to 2008, imploded during the financial crisis, and is today still struggling to recover. The biggest difference, though, is the level of attention regulators pay to the market, imposing a host of rules, including those that require issuers to keep a slice of securitized debt, as well as those that demand investors hold more capital against losses.

"Twenty years ago, I was looking at deals day after day," said Alexander Batchvarov, head of international structured finance research at Bank of America Corp. "Twenty years later, today, I am looking at regulations day after day."

The over-regulation of markets is a common complaint of bankers since the financial crisis, yet the ABS industry considers itself the victim of the most draconian measures, having borne the brunt of blame for causing the crisis. The latest exhibit supporting this argument is the proposal from a member of the European Parliament member, Paul Tang, to raise skin-in-the-game rules—a requirement that the firm originating or sponsoring a deal must retain a portion of it—to 20 percent, from 5 percent.

While such new rules are aimed at preventing a repeat of the financial crisis, bankers counter that they stifle the ABS market and eliminate a useful tool for freeing up bank balance sheets and encouraging them to lend. The European Central Bank has also been buying the debt as part of its efforts to stimulate lending and growth in Europe's moribund economy.

"It's not just not giving us the benefit of the doubt, it's really looking at us with a great deal of suspicion," said Carol Hitselberger, a partner at law firm Mayer Brown LLP. "I think bankers and lawyers, all of the different folks that participate in this industry, are viewed by the regulators as almost innately evil."

The crackdown on ABS has crimped supply of new securitized assets: Bank of America's Batchvarov noted that issuance in 2016 is about the same as it was back in 1996. While issuance has slumped, attendance at Global ABS has grown tenfold, suggesting that a silver lining of greater regulation might be more jobs.

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