Quite apart from its economic merits, the attractiveness of ABS for investors has become something of a hostage to financial regulation. On 26 September 2012, Jonathan Faull, director-general, Internal Market and Services at the European Commission wrote to Gabriel Bernardino of EIOPA (the European insurance regulator) suggesting that capital requirements under Solvency II for “long-term investment”, such as investment in infrastructure projects, could be reduced, including where such investment is made in the form of securitisation. It has been reported that the ECB is promoting the idea that certain ABS be eligible for inclusion in the liquidity buffer under Basel III. Both of these changes could greatly increase the liquidity and hence the attractiveness of certain types of asset-backed security. On the other hand, the Basel Committee has made it clear that it will review the risk weights applied to securitisation positions under the Basel Framework. It is understood that any revisions are likely to be upwards. Moreover, the intensifying focus on “shadow banking” of the FSB and European Commission, while not necessarily increasing the direct regulation of securitisation, could easily have indirect consequences (for example, by limiting the attractiveness of repo of ABS or the investment appetite of money market funds) on securitisation volumes.
The impact of regulatory developments on ABS investors and other critical subjects for the securitisation industry will be discussed at the SCI 6th Annual SCI Pricing, Trading & Risk Management Seminar taking place at the London offices of Reed Smith on 7th December 2012.