A prominent securitisation lawyer has criticised the lack of convergence between regulatory bodies with regard to securitisation regulation.Speaking at a panel discussion at the European Securitisation Forum in London on June 3, Jason Kravitt, senior partner at Mayer Brown, argued regulatory authorities had failed to provide consistent guidelines and rules on securitisation, irrespective of their good intentions.
"There is no principle more inconsistent with the Basel requirement that you reduce capital if you transfer risk than requiring banks to keep part of the assets that they are securitising, particularly the lower tranche," said Kravitt, in reference to the European Union's 5% retention rule for securitisations.
"Similarly, the new [de-recognition] accounting rules in the US [make it] much harder to take the assets off your balance sheet - and reduce risk - if you're retaining a large portion of the pool every time you transfer, particularly the lower [tranche]. Are these entities talking to each other to try to come up with a consistent requirement with all of their policy considerations? Unfortunately, the rules that I see don't do it," he added.
Xavier Tessier, head of international affairs at France's Autorité des Marchés Financieres, also stressed the need for a convergence of regulatory standards "as the market is global".
Meanwhile, Greg Medcraft, co-chair of the International Organisation of Securities Commissions, defended regulators' track records, insisting: "There is a real, genuine commitment to try to work together. At the micro level, regulators are working as teams around the world to try and come up with a consensus view."
Elsewhere, panellists agreed politicians need to understand the importance of reviving the securitisation market. "Two thirds of non-equity financing in the European market comes through the banks, compared with a third in the US. So securitisation is actually fundamentally far more important to the European market than even the US market," explained Donald Ricketts, head of financial services at Fleishman-Hillard.
Peter Jeffrey, European structured finance group leader at PricewaterhouseCoopers, warned the European elections could raise further problems for the securitisation market. "I don't think we should underestimate what the European elections are going to bring. I think we are going to end up with a parliament that is definitely less sympathetic to the capital markets. The industry is going to have to start again in a number of areas."
Turning to US regulation, Mayer Brown's Kravitt predicted the US would not "follow Europe's lead" when implementing its own version of the retention requirement for securitisations.
Kravitt also speculated on the future of the US government-sponsored mortgage securitisation market. In particular, he outlined two options for breaking up Fannie Mae and Freddie Mac: either into a number of private entities without an explicit government guarantee or - in the mould of Ginnie Mae - into a number of government-sponsored entities that guarantee the market.
"[These government-sponsored entities would] utterly dominate the mortgage market and create much less securitisation opportunity for private label-type mortgages. Given the administration's bent, I think we will end-up with a much more government-guaranteed market," he commented.
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