EBA has a public hearing on the LCRs. No good news for securitisation

Today, the EBA held a public hearing on the LCRs generally.  The meeting was somewhat unusual in that the hearing was on two EBA reports where no drafts had been circulated.  The EBA did apologise for this, citing brutal time pressures.  As a result, the hearing took place over slides that were shown for the first time at the meeting itself.  The EBA was also at pains to indicate that these slides represented a draft of the report to be presented and not the final conclusions.  The EBA indicated that the slides would appear on their website, although they do not yet appear to have been posted. We will post a link as soon as they appear. The first set of slides related to the EBA’s report of a definition of HQLAs. In two draft ranking tables, ABS twice appeared at the bottom and way below covered bonds.  Although the EBA representative mentioned a number of times that they were looking at carving our sub-categories from the overall categories – such as ABS – there was no indication of what could be included in the definition of highly liquid assets other than some RMBS.  Despite speaking favourably about qualitative aspects being taken into consideration, the EBA also strongly re-iterated the primacy of quantitative analysis based on their chosen data sets.  In the context of securitisation, William Perraudin, of RiskControl and PCS strongly queried the validity of the EBA’s quantitative approach and the limited data sets they chose to use.  PCS specifically enquired whether the EBA, constrained by their mandate, would nevertheless be prepared to point out in their report to the Commission the methodological limitations of their approach.  The EBA did not provide an answer.  Representatives of the European auto industry also made cogent points about the inadequacy of the chosen approach for auto ABS and enquired whether the EBA would be prepared to contemplate using more qualitative elements.  The EBA’s response remained generally positive but not very hopeful. The second set of slides presented by the EBA related to the impact assessment of the introduction of LCRs.  Again, in the context of securitisation, PCS enquired whether the EBA had done any macro economic impact analysis about the selection of some asset classes as HQLA and the exclusion of other, as their presentation only appeared to focus on the impact of the introduction of LCRs generally for various businesses.  The answer appeared to be in the negative.