The American Securitization Forum (ASF) focused on regulatory issues facing the ABS industry — ranging from FAS 166/167 to SEC Rule 17g-5 — at its annual meeting today in New York.
ASF Chair and Natixis Managing Director Ralph Daloisio, who will remain chair of the ASF for the next year, commented on the recent regulatory changes facing the industry in his opening address.
He cited the Federal Deposit Insurance Corp. (FDIC)’s proposed Safe Harbor provisions, the Security and Exchange Commission (SEC)’s Rule 17g-5 and Reg AB II, and the proposed Franken Amendment among the association’s most pressing concerns.
As a response to these directives, Daloisio stressed the importance of clarity. Regulatory reform, he argued, should not be contradictory and confusing. He reiterated ASF's belief that regulatory reform is best left with the lower regulatory bodies that are closest to the issues and is less efficient when tackled by federal legislators.
Daloisio also thanked ASF members for their high degree of professional efficiency in dealing with the tumultuous reform agenda of recent months.
During a session titled Regulatory Capital, FAS 166/167 and Risk Retention, panelists discussed the reaction of U.S. and foreign issuers to new U.S. regulatory capital rules.
Ann Kenyon, a partner at Deloitte & Touche, said that the effects of changes to accounting rules has not been as pronounced as previously feared. Since the changes were widely anticipated, Kenyon explained, banks took some steps to sell off certain positions. She also expects securitization structures to evolve as balance sheet pressures increase.
Debbie Toennies, managing director of JPMorgan Securities, said that the regulatory capital changes affecting the ABCP market have made it difficult for U.S. firms to compete with their foreign counterparts. She mentioned the new capital requirements that ABCP issuers have to comply with have caused a decline in U.S. ABCP, which comprises over a third of the global market.
Toennies proposed that the best solution would be to reinstate U.S. issuers' ability to use the internal assesment approach. She said that using a formulaic approach makes it difficult to calculate the required capital because this needs significant information about the obligors of underlying transactions, which is data typically only available for asset pools as a whole.
Greg Coleman, a national bank examiner from the Office of the Comptroller of the Currency (OCC), stressed the importance of high underwriting standards. “When underwriting is poor, it seems to drive the problems in the securitization structure,” Coleman said. The OCC is in favor of developing minimal underwriting standards, especially for residential mortgages. “If you have those,” the regulator explained, “you do not need risk retention requirements in the market.”
Coleman went on to ensure industry leaders that the OCC supports greater transparency but needs to identify what information is truly necessary and relevant to investors to make their own decisions independent of rating agencies.
Jason Kravitt, senior partner at Mayer Brown and moderator of the panel, emphasized the role that securitization plays in creating incremental credit. “Securitization creates credit for an economy that would otherwise not have been created,” he said.