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Equipment Finance News Trade associations spearhead push for revival of European securitisation Published: 17th October 2016 Share Despite the ongoing, albeit modest, performance of European securitisation since the financial crisis, the market has undoubtedly suffered significantly in recent years. The history of securitisation, especially in the immediate pre-recessionary period in the US sub-prime mortgage market has led to high capital charges and harsh treatment under liquidity rules – with regulatory costs for holding securitisation paper several times higher than other similarly-rated products. As a result, new issuance levels continue to be low and participants are leaving the market. Now, however, some eight leading European trade associations representing investors, originators, issuers and other market participants have released a paper highlighting the importance of securitisation for jobs and growth in Europe, and underlining their commitment to supporting a safe and sustainable market that serves the real economy. Ahead of the public exchange meeting in the European Parliament where MEPs were to discuss proposed amendments to the draft regulation for Simple, Transparent and Standardised (STS) securitisation, the associations have published a paper to make a positive case for the revival of securitisation for the benefit of Europe’s businesses, borrowers and consumers. The associations say that policymakers are right to raise questions around the risks and benefits of seeking a revival of securitisation in Europe. Their joint trade paper sets out to address these issues. The Association for Financial Markets in Europe (AFME), the Dutch Securitisation Association (DSA), the European Banking Federation (EBF), the European Fund and Asset Management Association (EFAMA), Leaseurope and Eurofinas, the International Capital Market Association (ICMA) and Pensions Europe have all signed the paper and make the following key points: ● securitisation can support SMEs and households in many different ways; ● a revival of sound securitisation can help diversify risks, thereby making the financial system more stable; ● a well-designed STS framework will deliver “simple”, “transparent” and “standardised” securitisations; ● transparency and disclosure standards are already robust– further requirements should build on existing infrastructure and be carefully calibrated; ● the lessons of the crisis have been learned and reflected in EU regulations; ● investor due diligence is important, but unnecessary duplication should be avoided as it disincentivises investment; ● risk retention is important: the existing rules ensure alignment of interests and sufficient “skin in the game” for those who securitise; and ● tranching is common across all debt markets and is an essential feature of the securitisation technique to meet investors’ needs. As a key component of the Commission’s flagship Capital Markets Union initiative, the associations believe that a new STS securitisation framework could generate €100-150 billion in additional funding for the real economy and act as a key driver in encouraging investor participation in European capital markets. The associations hope the paper will make a useful contribution to the ongoing European debate on this topic and urge EU legislators to bear these themes and arguments in mind as the debate progresses. Leaseurope’s director general Leon Dhaene (pictured above) said: “Securitisation allows leasing and consumer credit providers to raise sufficient capital for lending to European businesses and households, supporting job creation and sustainable growth. “Therefore, our Federations are strongly committed to work together with European policy makers and other industry participants to achieve a fair and balanced securitisation framework which supports the real economy.” Asset Finance Connect Asset Finance Connect brings you news and updates about UK and European auto, equipment and asset finance providers. 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