The EBA has responded positively to a request from the Italian securitiy markets authority Consob (which is also the competent authority in Italy under the Securitisation Regulation with regard to STS). Consob had proposed a deviation from the requirements of Article 26e(10) of the Securitisation Regulation for Italian banks. This decision could have a positive impact on the synthetic securitisation market in Italy.
Cash collateral requirements cannot be met by Italian banks
The background to Consob’s request is the requirement for cash collateral deposited as part of a synthetic securitisation as set out in Article 26e(10) SECR. In accordance with this regulation, these must be deposited at a bank with a credit quality step of at least CQS 2. In the case of synthetic securitisations, this bank is often the originator bank itself. Due to Italy’s rather low country rating (BBB and therefore CQS 3), this requirement currently cannot be met by any Italian bank. This criterion therefore represents a major obstacle for the synthetic securitisation market in Italy.
Waiver could increase the number of synthetic on-balance-sheet securitisations in Italy
The EBA has now voted in favour of this request to recognise Italian banks with a credit rating of CQS 3 as eligible to hold cash collateral. This opens up the possibility for a large number of Italian banks to issue synthetic STS securitisations with cash collateral.
Conclusion
The EBA’s decision is to be welcomed, as it removes inappropriate regulatory barriers that affect an entire country. As a result, a revival of the synthetic securitisation market in Italy can be expected.