Spread tightening in the European securitization market has driven a range of issuers back to it in recent weeks. This should give the industry cause for optimism. But not all of those issuers are the ones that industry advocates would like to shout about, as they battle for better regulatory treatment.
Simple, vanilla transactions from German auto ABS issuers, and non-bank RMBS issuers, are exactly the sort of deals that lobbyists like to use to demonstrate the virtue of the once maligned asset class as a source of credit for the real economy. The transparent deals are a far cry from the opaque quackery seen in the US subprime market before the crisis — a market that some European politicians, still debating the industry’s regulatory outlook, all too often conflate it with.
But there are also more complex deals emerging from the shadow banking sector, as spread tightening drives new arbitrage possibilities. Industry lobbyists may not want to highlight the use of securitization as a tool for private equity firms to score lucrative trades, but these deals have been some of the most significant and successful that the market has seen this year.
In pushing for a more favourable regulatory treatment of the sector, industry advocates should not be ashamed of the role securitization plays behind closed doors, as well as in the public markets. Its diversity should be seen as a sign of strength.