ABCP looms large among the victims of Moody's bank downgrades on June 21. Some of these banks support ABCP conduits, which, in turn, saw their ratings drop. And in ABCP land, that single grade difference can make or break a conduit. It's because money market funds - ABCP's biggest investors - can only buy 'P-1' paper.
This comes on top of another huge disincentive for money mutual funds to buy ABCP, as Nora Colomer explains in this month's cover story. These investors are facing regulatory curbs that would reduce their buying power. The situation illustrates once again the rigmaroles caused by tighter regulation of the securitization market and, in this case, related sectors.
The center of all this - the Dodd-Frank Act - celebrates its two-year anniversary this month. In his story on regulations, John Hintze says that securitization pros can forget about taking their summer breaks. A barrage of regulations is soon to hit the Street.
There's more. An earlier proposal to amend Reg AB, known aptly as Reg AB II, is imminent. It's been on backburner since 2010, but the buzz now is that it might be finalized over the next few months. The SEC opened the proposal for public comment in April 2010, with the comment period ending in August of that year, shortly after Dodd-Frank became law. Before this new twist, the prevailing wisdom was that Reg AB II, which revises disclosure and reporting rules for public securitizations and requires similar disclosures of private 144A deals, would be on hold until regulators met their Dodd-Frank deadlines. That no longer looks like the case.
Just as uncertain as the timing of these rules is the role that the Consumer Financial Protection Bureau will play in regulating the ABS market. As John points out in his other story, even though close to two years have passed since the bureau was formed, the scope of the CFPB's powers remains largely a mystery. So far the government agency has finalized three relatively minor rules, and has yet to enforce any of the major consumer-finance related laws and regulations that were officially placed under its umbrella last July. But John reports that all these are likely to change soon. The bureau is now pursuing initiatives that will shape the securitization market such as servicing standards expected later this summer. Beyond this, it seems the agency will affect the securitization market in different, and more importantly, unforeseen, ways as the extent of its already-broad and ill-defined purview could grow.
If the U.S. were to take the lead from Europe, what might be needed is to present regulators with an alternative product that would convince them of the economic significance of many segments of securitization.Launched during Global ABS, the initiative of collateralized securities (PCS) aims to do just that. Felipe Ossa says in his story on PCS that this new label of best practices may ultimately depend on regulators to make converts of ABS-wary investors, although the head of the project's Secretariat, Ian Bell, thinks success could happen without regulatory support.
To be sure, one of the big ideas behind PCS is getting big mainstream investors back into those sectors of European ABS that have, through the crisis, proven their mettle. Whether it does what its boosters hope it will do, PCS is at least a cogent, industry-driven effort to show regulators that much of securitization is bound to the real economy. It's hard to argue against that.