Friday, 11 July 2008

What wimps: the EU waters down capital proposals for securitisations

The commission has bottled the capital treatment of securitisations. According to Bloomberg:
European Union officials scaled back a plan to stiffen capital requirements for asset-backed bonds, responding to banking industry objections the measure would have hurt European lenders without reducing risk.

The revised proposal, posted online last week, would let banks freely invest in securitizations -- such as the mortgage bonds that sparked the credit crisis of the past year -- as long as the issuer owns 10 percent of the assets. Banks wouldn't have to set aside any capital for those holdings. An earlier version would have forced issuers to retain 15 percent.
15 was already too low. 25 or 30 is more like it. 10 does little to align interests between securitisation buyers and sellers, which is the key issue.

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