Today, the European Banking Authority held a public hearing and published the outline of its technical advice to the Commission on simple, transparent and standardised securitisation.
The presentation has much to commend it. The definition of STS securitisation closely follows the EBA’s original proposals with some notable improvements in areas where stakeholders had raised concerns (such as the no-credit impairment requirement). On a number of other areas of concern, we will need to wait for the full report (publication announced for early July) in which the EBA has promised the more detailed answers needed to gauge the definition’s suitability. In an announcement that will be well received by overseas issuers and European investors, the original position that only European deals could be STS compliant has now been reversed. The outline also provides the first set of rules for asset-backed commercial paper conduits, opening up the possibility that ABCP conduits could find a home within STS’ first incarnation. PCS has not had the time to digest fully the ABCP proposals, but at first blush they appear sensible – though a rule that no asset have a maturity of over one year is arguably unnecessary. Synthetics are still out of scope and will clearly need to wait for STS Version 2.0 but the direction of travel is positive. On an issue close to PCS’ heart – the operationalisation of the rules – the EBA declined to make a concrete proposal. Yet it did speak favourably of the possibility of third party certification agents in this context, leading us to believe they might well support such agents being part of the final rules.
Last, but not least, the outline set out some new calibrations for the capital treatment of STS securitisations under the Basel rules. These are noticeably improved, but PCS is waiting for its quantitatively minded friends to run the numbers more fully before passing any judgement. The proposals still contain though an artificially derived capital non-neutrality and seek to maintain the differencial between the IRBA and ERBA methods, positions of which PCS remains unconvinced.