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Higher Quality Securitization

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Financial Regulation in the EU

Abstract

What is securitization? What is its role in the economy? Why have regulators been ambivalent about restricting its use and promoting its growth? This chapter will go over the basics of securitization, discuss the merits and flaws of current regulation and outline future challenges on the path to the European Capital Markets Union.

Daphné Héant, structured credit investor, member of Club Praxis.

Sophie Vermeille, president of the think tank Droit et Croissance, lawyer at DLA Piper, researcher at Laboratoire d’économie du droit at Paris II Panthéon—Assas and lecturer at Paris II.

Yann Coatanlem, president of Club Praxis and director of research at Citigroup.

Special thanks to Pierre-Charles Pradier for his careful review and insightful comments.

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Notes

  1. 1.

    http://www.wsj.com/articles/eu-proposes-new-capital-rules-to-boost-securitization-1443610493

  2. 2.

    http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000375-The-Rebirth-of-Securitization.pdf

  3. 3.

    Financial Times, 17 February 2015

  4. 4.

    Regulation of the European Parliament and of the Council laying down common rules on securitisation and creating a European framework for simple, transparent and standardised securitisation and amending Directives 2009/65/EC, 2009/138/EC, 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No

    648/2012, 30 September 2015

  5. 5.

    The authors for this analysis contributed to a Club Praxis report in April 2015. Section 4 by Sophie Vermeille was integrally copied and translated from French by Pierre-Charles Pradier: http://www.clubpraxis.com/?p=1658.

  6. 6.

    Basel Committee on Banking Supervision, Criteria for identifying simple, transparent and comparable securitisations , December 2014.

  7. 7.

    http://www.lexology.com/library/detail.aspx?g=3bbb3de9-6c6f-4b08-8910-7d18ea7e070d

  8. 8.

    “‘sponsor’ means a credit institution or investment firm as defined in Article 4(1) points (1) and (2) of Regulation (EU) No 2013/575 other than an originator that establishes and manages an asset-backed commercial paper programme or other securitisation transaction or scheme that purchases exposures from third-party entities.”

  9. 9.

    http://www.solvencyiinews.com/europe/anything-is-possible-in-sii-securitisation-charges-revamp.

  10. 10.

    A Guide to the New Securitisation Regulation in Europe, Nomura, October 2015.

  11. 11.

    “France warns that EU securitisation push lacks ambition,” Financial Times, October 2015.

  12. 12.

    Macron law, Article 169 modifying section L. 144-1 of the Monetary and Financial Code.

  13. 13.

    Bank of England, European Central Bank, March 2015.

  14. 14.

    AGEFI: http://www.agefi.fr/articles/la-bce-adoube-le-vehicule-de-titrisation-de-la-place-de-paris-1367847.html.

  15. 15.

    Cf. (Basel Committee on Banking Supervision, December 2012).

  16. 16.

    http://www.bis.org/bcbs/publ/d346.htm.

  17. 17.

    J.P. Morgan, 5 November 2015.

  18. 18.

    http://www.sifma.org/issues/item.aspx?id=8589957660.

  19. 19.

    http://www.businessfinancenews.com/26659-morgan-stanley-to-dismiss-400-employees/.

  20. 20.

    https://www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Documents/Charge_2.pdf.

  21. 21.

    Loan retention vehicle (and CLO) investment primer, Citigroup, September 2015.

  22. 22.

    The incentive fee return hurdle is generally 12 % but it varies in each CLO, in practice between 10 % and 15 %.

  23. 23.

    Committee of European Banking Supervisors, December 2010.

  24. 24.

    Cf. http://ec.europa.eu/finance/bank/regcapital/legislation-in-force/index_en.htm#maincontentSec1.

  25. 25.

    https://www.fdic.gov/regulations/reform/dfa_selections.html#941.

  26. 26.

    CLO incentive fees are only distributed after the CLO Equity achieves an IRR around 12 %, which is generally after the deal is liquidated (four to ten years after issuance).

  27. 27.

    Vertical Slice Financing: A Sensible CLO Solution, Citigroup, August 2015.

  28. 28.

    http://www.bloomberg.com/news/articles/2015-11-05/conning-to-buy-octagon-in-junk-bet-add-12-8-billion-of-assets.

  29. 29.

    http://www.maplesandcalder.com/fileadmin/uploads/maples/Documents/PDFs/Risk_Retention_Survey_of_US_CLO_Managers_-_Feb2016.pdf.

  30. 30.

    Creditflux, October 2015.

  31. 31.

    http://webcache.googleusercontent.com/search?q=cache:7fBTLRnQBGsJ:www.lsta.org/document/default/download/file/f08638f5-9a98-11e5-af38-0050568e41f7+&cd=1&hl=en&ct=clnk&gl=us.

  32. 32.

    http://www.globalcapital.com/article/q77tcy6bg69s/risk-retention-exemption-riles-barney-frank.

  33. 33.

    Markets in Financial Instruments Directive.

  34. 34.

    For further reference see a Praxis report on business support (Club Praxis, November 2013), a report by the think tank Law & Growth with the support of Labex Louis Bachelier (Droit & Croissance, November 2014) and the proposals from the Council of Economic Analysis (Plantin, Thesmar & Tirole, 2013).

  35. 35.

    Convention Nationale, May 1793.

Author information

Authors and Affiliations

  1. Club Praxis, New York, NY, USA

    Daphné Héant

  2. Droit et Croissance and DLA Piper and Laboratoire d’économie du droit at Paris II Panthéon, Paris, France

    Sophie Vermeille

  3. Club Praxis and Citigroup, New York, NY, USA

    Yann Coatanlem

Authors
  1. Daphné Héant
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  2. Sophie Vermeille
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  3. Yann Coatanlem
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Corresponding author

Correspondence to Daphné Héant .

Editor information

Editors and Affiliations

  1. Labex RéFi and Centre d’Economie de la Sorbonne, Paris, France

    Raphaël Douady

  2. Université Paris 1 Panthéon-Sorbonne, Paris, France

    Clément Goulet

  3. Labex RéFi and Centre d’Economie de la Sorbonne, Paris, France

    Pierre-Charles Pradier

Annex

Annex

Appendix A.1 Summary of Simple, Transparent and Standardised (STS) Securitisation Criteria (Source: European Commission and Nomura)
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Héant, D., Vermeille, S., Coatanlem, Y. (2017). Higher Quality Securitization. In: Douady, R., Goulet, C., Pradier, PC. (eds) Financial Regulation in the EU. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-44287-7_16

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  • DOI: https://doi.org/10.1007/978-3-319-44287-7_16

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