Clifford Chance

New Landscapes: Practical evaluations of new regulations impacting structured debt transactions

10 June 2011

Market professionals consider that securitisation issuance in Europe in calendar year 2011 is likely to reach €100-€150 billion (excluding central bank liquidity trades). This is up from approximately €90 billion in 2010 and underlines a recovery in the securitisation market. However, at the peak of the market in 2006, issuance amounted to some €450 billion. Even allowing for some types of investors permanently leaving the market (for example leveraged buyers such as SIVs) it is questionable whether a market size of €150 billion is sufficient for securitisation to fill the funding gap for European banks seeking to fund real economy assets. In this context the impact of regulation creates a significant hurdle for both originators and investors to overcome and can be a material disincentive. Consequently understanding regulation and making it workable and appropriate is probably the most urgent task facing securitisation professionals in the new world of securitisation.

This latest publication in our series exploring the re-emerging securitisation market considers new regulations in Europe and the US that impact securitisation and issues that have emerged in the implementation of that regulation. We also include an opinion piece proposing a new schematic for regulating financial products that can fall within the current Basel II/CRD definition of securitisation. We hope our readers will find this publication interesting and thought-provoking.

Unfortunately we have not reached the end of new regulations affecting securitisation. The next wave of regulation will emerge from the broad macro-regulatory provisions of the Basel III/CRD IV proposals relating to bank regulation. Each of the four key proposed ratios – the regulatory capital ratios of the Tier 1 Capital Ratio and the Leverage Ratio and the liquidity ratios of the Liquidity Coverage Ratio and the Stable Net Funding Ratio - will affect securitisation to some extent. Both for originators and investors these effects may include some positive features as well as a number of negative features. Consequently, it is crucial that over the coming months these proposals are subject to consideration, consultation and hopefully amendment through constructive engagement with regulators by the securitisation industry. New regulation will be a way of life for securitisation for some time yet!

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