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| Elemér Terták |
Keynote speaker Elemér Terták, principal advisor, financial institutions, DG Internal Market & Services at the European Commission, offered Global ABS 2011 attendees little new insight into the thinking of regulators, instead vowing to deny the European securitization market a repeat of mistakes made in the past. Speaking at the Information Management Network conference in Brussels this morning, Terták ticked off securitization’s “seven deadly sins,” naming the originate-to-distribute model, servicing conflicts, investor overreliance on credit rating agencies and the diffusion of risk into the global financial markets as the main “wounds of securitization.”
The bulk of the speech covered the familiar laundry list of regulatory initiatives. Proposed remedies included the ongoing push by regulators to increase core capital reserves among banks and the need to establish a derivative clearing houses. Also mentioned was the need for banks to increase disclosure of their trading book exposure to securitizations, as well as stronger supervision, risk management and continued stress testing.
But Terták’s remarks also contained a note of optimism, including a nod to Europe’s already revving up “engine of securitization” and its permanence as a funding source. “It may not be a gilded as it once was,” he cautioned. “But ABS is here to stay and has an appropriate role going forward.”
Still lurking, however, remains uncertainty surrounding the final shape of the rules, as well as coordination in the global reform effort. “The G20 was created to insure the global rules are applied,” Terták said. “Both sides are nervous. [But] I do not see any sign of major deviation.”
He declined to disclose early discussions on Basel 3, instead urging the industry to focus on producing “very good paper based on very good assets.” To illustrate the point, he drew on the first law of thermodynamics: “Risk may change its form, but it will never disappear.”