The Federal Reserve has made big losers out of ABS and RMBS structures because it doesn’t consider them liquid high quality assets under liquidity coverage ratio rules implemented on Sept. 3, 2014, according to participants of the ABS East conference hosted by Information Management Network (IMN).
The final US LCR rules under Basel III [Europe must also implement LCR rules under Basel] gives RMBS and ABS 0% liquidity at a time when the EU is making a push to emphasize the importance of securitization to revitalize the economy and asking that RMBS and ABS, given their strong performance throughout the crisis, be given the designation of high quality assets.
“[In the US] highly rated RMBS and ABS are not considered high quality assets and this makes them non-liquid assets,” said Sairah Burki, a director at the Structured Finance Industry Group (SFIG). EU regulators recently postponed implementation of final LCR rules, in keeping with a new push to revive certain segments of the securitization market.
SFIG Executive Director Richard Johns said LCR creates an “awful lot of conflict” with the U.S. government's push to bring back private label mortgage-backed securities, in particular.
“The Administration is saying bring private capital back but LCR rules say private label mortgage securities are an illiquid product,” said Johns. “It is unreasonable for an issuer to work on a long-term funding strategy with this kind of regulatory overhang,”