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Mersch wants more holistic effort on ABS revival

yves mersch
By Tom Porter
11 Jun 2014

European Central Bank executive board member Yves Mersch has called for a “more holistic and co-ordinated” approach to the regulatory treatment of asset backed securities, but stressed that his institution’s support of the asset class was purely in pursuit of its goal of price stability.

In a keynote speech to the Global ABS conference in Barcelona on Wednesday, Mersch called for greater cooperation between Europe’s top rulemakers, rather than a focus on single issues like “excessive” securitization capital charges and “overly constraining” liquidity rule proposals.

“There is still a sense that the regulatory agenda is proceeding in an uncoordinated fashion,” he said. “Would it be too challenging to align views at least at the European Union level, and speak with a single voice in global fora?”

Mersch has been one of the key proponents of ABS, and was keen to point out some of its undue disadvantages in the regulatory arena.

“So much effort is being devoted to improving transparency in ABS and substantial progress has already been made,” he said. “Covered bonds on the other hand continue to have no common transparency framework and no common supervisory framework. Nonetheless they benefit from preferential risk weights.”

Managing expectations

ECB president Mario Draghi last week announced the central bank was “intensifying preparations” for outright purchases of certain ABS securities.

Mersch continued to manage the market’s expectations on the timeline of any action, saying only that his institution “might in the future consider” purchasing high quality ABS. The ECB would not be buying equity tranches, he said, but every other layer of securities should be up for discussion.

The central bank is not there to promote any single asset class or market, he said, emphasising that reviving the ABS market was seen by the ECB as a “means to an end” of achieving its single objective of price stability.

Agencies under fire

In a speech entitled “Next steps for European securitization markets”, Mersch also called for greater transparency and standardisation in ABS as well as transparency of the product’s treatment by ratings agencies.

Among his tentative proposals was the introduction of standardised prospectus templates for ABS, while he criticised the use of sovereign rating caps to ABS transactions.

“It is ratings agencies’ prerogative to decide their own methodologies, but more transparency on how ratings are decided would certainly help,” he said. “Investors should decide whether to apply sovereign caps or not.”

By Tom Porter
11 Jun 2014