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Regulations that have heavily favoured covered bonds over the European securitization market and that have little foundation in prudential risk are storing problems for the future. A report published on Tuesday by the Dutch central bank illustrating the regulatory mauling of the securitization market shows that nothing has changed.
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Lack of liquidity, not weakened credit conditions, has been the driving force sending marketplace lending securitization spreads wide by the hundreds, panelists at ABS Vegas said on Monday.
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Large financial institutions may be unwilling to continue to make markets in securitizations if punitive liquidity regulation in the ABS space continues, according to panellists at ABS Vegas.
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Representatives from Women in Securitization, a Structured Finance Industry Group initiative, said that a lack of transparency and employer accountability in the reporting of employee diversity is one of the main hurdles to changing the landscape of a traditionally male-dominated industry.
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European investors are likely to be big contributors to the US CLO market as the country finalises its risk retention requirements, according to panellists at ABS Vegas.
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Capital market participants tend to keep their heads below the political parapet. Brexit is one issue they must not ignore. It would sabotage the City’s leadership in financial services and be an assault on the fabric of global governance.
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Regulators and politicians thought after the crisis that lenders should stick to making loans that match their liabilities — banks to the short term, insurance companies to long term lending. The opposite is happening. If regulators want to achieve their aims, they need to review the rules now.
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That securitization can help stimulate lending to Europe’s real economy has become somewhat of an ECB mantra. The ECB’s ABS purchase programme was designed to stimulate new issuance by making it cheaper and easier for banks to obtain funding and free up capital for new lending.
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High quality securitizations that benefit from favourable capital treatment could be the catalyst that the ABS market needs, by increasing investor confidence in the market and making the asset class more attractive to issuers. But regulators need to sort out their differences first.