The final scope of regulations governing securitization in Europe will shape the future of the industry, according to a report released today by Standard & Poor’s.
And the agency does not sound particularly sanguine on the matter.
“As currently drafted, we believe that proposed changes to the Basel securitization framework and the treatment of securitization exposures under Solvency II would represent a significant threat to the European market,” said S&P credit analyst Mark Boyce.
But the agency recognizes that there are grounds for some optimism. The stigma hanging over the sector since the crisis has been easing and European policymakers have softened their punitive rhetoric about securitization.
Still, Boyce said that it remained to be seen whether this change in views finds its way into the final character of regulations.
Also weighing the European market is the lack of origination. “Issuance will likely not rise significantly until banks’ and other institutions’ lending appetite increase and private sector cried demand rises, pushing up underlying lending volumes,” Boyce said.
In the years up to the global financial crisis, securitization was a major source of funding for European consumers and companies alike. For instance, issuance of new residential mortgage backeds in 2007 was about a third of all mortgage lending in the U.K., the Netherlands, Spain and Ireland. Some sectors have crept back since then but the market remains a fraction of what it was during the peak years.
In 2006, investor-placed securitization was about €500 billion ($689 billion). This year, it has been €60 billion.
The chart below paints the bleak picture, where every year since 2008, the market has shrunk.