Reuters: Regulatory News: Trading banks launch complex products quality label

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Trading banks launch complex products quality label Jun 12th 2012, 12:30 By Douwe Miedema LONDON, June 12 | Tue Jun 12, 2012 8:30am EDT LONDON, June 12 (Reuters) - Europe's investment banks launched a best-practice label for complex debt instruments that were at the heart of the credit crisis, as the capital markets industry fights back to kick-start a once important source of income. The banks, represented by two lobby groups, also hope that revitalising the market for so-called securitised instruments will make it easier for them to raise funds. Crucially, the project - which will involve setting up a secretariat - has received the backing from both the European Central Bank and the European Banking Authority, which groups together Europe's bank watchdogs. "The European Central Bank welcomes the initiative, which aims at increasing the attractiveness of asset-backed securities among investors and originating banks," ECB President Mario Draghi was quoted as saying in a press release. Securitisation is a process in which banks transfer the risk that a borrower defaults to outside investors, paying them heavy interest rates in return. This enables the bank to free up reserve capital, which it can then use otherwise. Only securitisations based on safe asset classes would be awarded the Prime Collateralised Securities (PCS) label, the Association for Financial Markets in Europe (AFME) and the European Financial Services Round Table groups said. Among those were auto loans and leases, residential mortgage loans, loans to small and medium enterprises, consumer loans and credit card receivables, the two groups said. But the opaque and highly complex debt instruments that turned toxic in the credit crisis, such as Commercial Mortgage-Backed Securities, Collateralised Debt Obligations and so-called synthetic securitisations, would not get the PCS label. The new brand is designed to polish the image of the assets that could be used by the European Central Bank as security - a stamp of approval that would reassure investors. Issuance of asset-backed securities spiked in Europe in 2008 at more than 700 billion euros ($875.77 billion) and three years earlier in the U.S. when it topped 2.6 trillion euros. Just 234 billion euros of ABS was issued in Europe last year, according to research by AFME. But talk of its return worries some, with Germany's Bundesbank expressing concerns to Draghi about an earlier easing of collateral standards by the ECB. Credit Suisse, Deutsche Bank, JPMorgan , UBS, BNPParibas and Bank of New York Mellon : are among the funding members of PCS. Link this Share this Digg this Email Reprints

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