Proposed changes to the Capital Requirements Directive (CRD IV) – which is the European Union's mechanism for implementing Basel III into law – could cause banks' capital requirements to be diluted.
The allowances given for national discretion in the application of the rules can also be broadened.
Basel III set specific changes to banks’ treatment of securitization exposures when calculating these institutions' capital requirements.
According to Standard & Poor's, the changes to CRD IV would be positive for European structured finance because the latest draft of CRD IV now includes securitization holdings in new bank regulatory liquidity buffers.
"A January draft explicitly excluded securitizations, but an update removed the clause and directed the European Banking Authority (EBA) to consider the inclusion of RMBS, for example, as assets of 'high liquidity and credit quality'," S&P analysts said.
European banks have tended to hold more ABS on their books compared to their U.S. counterparts, so the inclusion of these assets is critical for demand from bank investors.
"Any inclusion of ABS/RMBS in the liquidity framework would be a powerful endorsement and catalyst to a much deeper bank buyer base, in my view," a securitization market analyst said.
The EBA will report to the European Commission by June 2013.
