Europe's top two central banks seek to revive 'toxic' assets

Europe's top two central banks are joining forces to push for the relaxation of rules on an asset class blamed for the global financial crisis, as they attempt to unclog credit flows in the region.

The European Central Bank and Bank of England aim to make a joint intervention as soon as this week's International Monetary Fund meetings in Washington DC as they back a revival in the market for asset-backed security, or bundled debt.

ECB executive board member, Yves Mersch, said the two central banks had a "common analysis and a common suggestion" to change draft regulatory proposals that they fear will stifle the securitisation markets in Europe.

"We have agreement on the main thrust of a policy line to propose," Mr Mersch said after a speech in London. "We call on those who do those rules to reassess their past position, and to take [our views] into account."

Mr Mersch said the reforms of the market for securitisation triggered by the financial crash of 2007-9 risked penalising the creation of bundled loans and argued that a new approach was needed.

If new rules failed to gain traction at the level of bodies such as the Basel Committee, an EU-specific approach may be needed, Mr Mersch said. He added there were already signs that EIOPA, the European insurance and pensions watchdog, was moving in the right direction on the regulatory treatment of securitisation.

"Either we do it at the global level, [or] if that has no prospect of going through any time quick we should take into account the needs of the European Union and the differences we have in the European Union and adjust our regulation to the environment of the European Union," Mr Mersch said.

Mr. Mersch argued that international proposals do not take account of the fact that European instruments have performed better than their US equivalents. "The ECB feels that EU ABSs are being treated inappropriately by present regulations and proposals," he said in a Deutsche Borse-Clearstream event in the City of London.

According to S&P, the ratings agency, only 1.5 per cent of European ABS outstanding in mid-2007 defaulted by the third quarter of 2013. The comparable US figure was 18.4 per cent.

While draft rules implementing Solvency II, the law governing the European insurance industry, propose to lower the capital requirements on high quality securitisation, leading insurance companies have warned the new regulation is still too conservative.

The ECB has been vocal in its calls for a revival in the securitisation market, as it remains concerned about the impact of bank deleveraging on flows of credit to small and medium-sized companies. Mario Draghi, ECB president, alluded to the joint push with the BoE in a press conference last Thursday.

The BoE has also been calling for change in the ABS market. In an interview with the Financial Times, Andy Haldane, its head of financial stability, said securitisation should not be the "bogeyman" it was during the financial crash and that it instead could be the "financing vehicle for all seasons".

European issuance of asset-backed securities is down by a third this year, according to data firm Dealogic. Last year, €180.9bn of asset-backed securities were issued in Europe, nearly 40 per cent less than in 2012, according to the Association for Financial Markets in Europe.

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