The uncertain regulatory environment will delay the securitization market restart by at least another year.
Speaking at the American Securitization Forum's Sunset Seminar last night, Jordan Schwartz a partner at Cadwalader Wickersham & Taft said that before the provisions outlined under Dodd-Franck he anticipated a market restart by the 4Q but that's likely to be put on hold until the shifting regulatory stand solidifies.
The panelists speaking at the event said it's the confluence of changes ahead outlined under Dodd-Frank, Basel 3 and Reg AB that make for a confusing environment and make it tough for seller and buyer to make decisions.
Susan Thomas, associate general counsel at Ford Motor Credit Co. said that while Ford's auto ABS issuance is back to per crisis levels, concerns remained over the short term impact of regulatory changes. " We will continue to securitize because we have too but these are massive changes up ahead and the uncertainty is creating many issues."
The accounting rules under FAS166 and FAS 167 which have been in effect since the start of this year means that issuers will have to work harder to get assets off balance sheet. Issuers who are insensitive to having securitized assets show up on balance sheet will be most likely to continue to securitize.
"There will be a natural bias towards these types of issuers because getting those assets off balance sheet means an extra layer of cost and it also means waiting for that technology to be invented," said James Mountain, a partner at Deloitte & Touche LLP.
Mountain added that issues of regulatory capital which has driven securitization previously may very well end up in a situation where securitization is neutral from a regulatory capital standpoint. "People who relied on securitization historically as a capital adequacy vehicle won't be happy but the changes will level playing field and put securitization on par with other funding mechanisms," he said.
Basel 3 will also serve to reduce banks incentives to take on too much risk. Quality and Quantity of capital will be raised and as bank costs go up balance sheets will become more scarce, said Paul Vambutas, managing director at UBS AG.