On 11 November, the European Central Bank published its assessment of the European Commission’s legislative proposals to revive the securitisation markets. Both the Council of the European Union and the European Parliament had asked the ECB for its opinion, and the publication had been expected since the beginning of October.
Against the backdrop of the ECB’s mandate for monetary and financial market stability and banking supervision, the ECB’s opinion is helpful. Some of the key points are summarised here:
- The ECB welcomes the European Commission’s legislative proposals and the goal of strengthening securitisations in Europe.
- The relevance of high-quality securitisations and the STS quality segment created in 2019 is emphasised.
- For the transfer of credit risk, the ECB primarily considers traditional true sale securitisations to be the instrument of choice, as opposed to synthetic balance sheet securitisations.
- Securitisation supports the achievement of the ECB’s monetary policy objectives.
- The ECB stresses the importance of data availability and transparency.
- The principle of proportionality should be more firmly anchored in due diligence obligations.
- With regard to the proposed sanction regime, the ECB recognises the advantages of legal certainty, but also points to the risks of overly harsh rules that could deter investors; it proposes more proportionate rules with a focus on the sell side.
- While the ECB welcomes the proposed concept of ‘resilient’ securitisations, it suggests limiting this to STS transactions and a less complex set of rules.
- About risk weights, the ECB supports an RW floor of 7%, as proposed by the ESAs. On the other hand, it criticises that the ESAs did not consider the effects of the output floor in the Joint Committee Advice and suggests a recalibration of the p-factor.
As a result, the ECB takes up some important elements of the proposed legislative changes that need to be improved. It will be of fundamental importance that, on the one hand, synthetic balance sheet securitisations can contribute to capital management purposes, and on the other hand, traditional true sale securitisations are strengthened in equal measure to better connect bank-based corporate financing with the capital markets.