Banks urge Basel Committee U-turn on asset-based debt

BRUSSELS: Banks from Deutsche Bank to Barclays attacked proposals to overhaul global capital rules for asset-backed debt, saying they risk choking securitisation while clashing with efforts to boost lending to businesses.

Proposals by the Basel Committee on Banking Supervision would be so onerous for some securitisations that banks would shun investments in the debt, they said.

"The proposed rules would substantially reduce the incentives for banks to participate in securitisations" and could hamper "availability of affordable credit to the wider economy," Deutsche Bank said. The rules risk being "very punitive", Europe’s biggest investment bank by revenue said.

Limiting Bank Leverage

Basel regulators have been grappling with how to set capital rules for asset backed debt since the market collapsed in the wake of the 2008 crisis.

While the Basel group has focused on ensuring banks have enough capital to cover risks from their holdings, other authorities have focused reviving high-quality securitisations.

The Basel committee’s proposals published in December would constrain banks’ ability to minimise the capital they must hold to absorb losses on asset-backed debt. The group has said that the rules would be "more stringent than under the existing framework."

Economic Turmoil

Central banks and lawmakers identified the pre-crisis boom in securitisations as one of the prime causes of the turmoil that followed, as banks struggled with a drop in the value of previously highly-rated instruments based on residential mortgage debt.

The Basel committee approach fails to draw enough of a distinction "between asset classes that performed well during the credit crisis and those that did not," Barclays said. London-based Barclays declined to comment beyond its submission, while Deutsche Bank (DBK) declined to immediately comment.

Other banks seeking changes to the Basel approach include UniCredit SpA, Credit Suisse Group AG, and the Japanese Bankers Association. The Basel committee said in an e-mail that it will consider the issues carefully and declined to comment on specific points made by individual lenders.

Auto Loans

Some 180 billion euro of bonds backed by everything from auto loans to creditcard payments were issued in Europe in 2013 against a peak of 711 billion euro in 2008, according to data from the Association for Financial Markets in Europe.

US issuance totaled 1.5 trillion euro, down from a 2003 peak of 2.9 trillion euro. In parallel with the Basel effort to improve capital rules, authorities including the European Central Bank and the Financial Stability Board, a regulatory group set up by the G-20, are looking for ways to resurrect some of the lost funding to ease constraints on businesses.

The European Commission said last month that increased securitization could allow banks in the 28-nation European Union to expand their lending and bolster the role of other institutional investors in financing businesses.