The future of asset backed securities

Ruben van Leeuwen, Head of Credit Strategy and Regulation

LinkedIn profiel

Is the market picking up?

An interview with Ruben van Leeuwen, Senior Analyst Asset Backed Securities (ABS) at Rabobank

‘Subprime mortgages’. The term hangs like a dark cloud over the securitisation market. Named as one of the culprits of the credit crisis, this financial instrument has a tarnished reputation. Although research shows that securitisations in Europe generally consist of normal mortgages and other loans, investors have become reluctant. On top of this, regulators have considerably tightened the rules for these investments. All in all, this has had a big impact. In its heyday (2007/2009), investments in newly issued securitisations in the Netherlands amounted to approximately € 30 billion; last year, the total was a mere € 6 billion.

Ruben van Leeuwen, Senior ABS Analyst at Rabobank, follows the developments closely. ‘Despite the negative sentiment, securitisation remains an excellent instrument for alleviating the balance sheet of a bank or to create space for new loans. The latter is politically interesting, because securitisation can make providing credit to small and medium-sized businesses easier, which will give the economy a boost. In this context, the European Commission has taken initiatives for the adjustment of legislation in the field of securitisation. Important aspects of the regulation are common securitization rules and a framework for simple, transparent and standardized (STS) securitisations. Subject to specific conditions, lower capital requirements would apply for STS securitisations. However, approval by the European Parliament is still pending.’

Ruben expresses doubts about the new legislation. ‘The question is whether the legislation will have the desired effect. Initially, the proposed lower capital requirements will only apply to banks and not to insurers. But insurers should be regarded as the main investors in securitisations and the current approach of Solvency II discourages investing in this vehicle. In response to this, new products, such as conditional pass-through covered bonds, appear on the market. These are bonds issued by banks that use their mortgage portfolio as additional security. From a regulatory perspective, these bonds are more interesting to investors, which makes issuing these bonds currently cheaper than securitisations.

Ruben van Leeuwen is one of the speakers at the Securitisation Event 2016, where he will talk about the future development of the securitisations market. ‘In terms of balance sheet optimization, securitisation still is an interesting instrument, in particular with the increasing capital requirements imposed by the regulator. Is this where the opportunity lies?’

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