As they read AFME’s latest report comparing the regulatory treatment of securitization with that of covered bonds, this time focusing on liquidity coverage ratio (LCR) rules, many in the industry probably felt like banging their heads against a wall.
It’s just the latest piece of evidence confirming what everyone working in structured finance already seems to know — that the harsh approach to asset-backed securities in Europe is unfair and unnecessary.
GlobalCapital has searched in vain for a market participant who thinks the regulations as they stand make sense. LCR rules are a particular bugbear.
Promisingly — or perhaps it is wishful thinking — sources say that there is an increasing acknowledgement among policymakers that the situation should be addressed.
The stumbling block, as ever, is the long shadow cast by the global financial crisis (GFC). Nearly 14 years on from the collapse of Lehman Brothers, there is a sense that the ABS market has not yet served its sentence.
The question of whether European securitization rules will be made less hostile is not one of logic or reason. It is a public relations battle.
From the point of view of legislators and civil servants in the EU and UK, it is not hard to see why they would be reluctant to loosen rules on LCR eligibility. It is easy to imagine the press having a field day, portraying politicians or other officials as the eager facilitators of the next GFC.
But that does not mean equitable treatment of securitiation should be seen as a lost cause. AFME and other advocates of European securitization must keep chipping away at its reputation as the bogeyman of the financial markets.
Reasoned analysis on technicalities such as observed market liquidity is just one of many tools they can and should use.
It will also be crucial to play up the potential role of securitization in rebuilding economies after the pandemic, increasing access to finance for small and medium-sized businesses, and contributing to the sustainability transition.
Ultimately, the only thing to do is to play the long game. The European securitization community needs to keep its head down and, whatever it does, not cause another financial crisis.
After all, no one looks askance at the tulip market these days. Time is the great healer, and eventually the tide will turn. And besides, there'll be a new bogeyman in town soon enough.