U.S. Officials Skeptical of E.U. ABS Revival Plans

U.S. officials have stated that the European Union’s (E.U.) plan to revive their ABS market is too geographically limited and may pose unnecessary risks to financial stability, according to a recent Bloomberg article.

The E.U. has proposed easing the capital requirements on “simple, transparent and standardized” (“STS”) securitizations in order to encourage lending to small businesses by giving banks more options for funding loans.

According to the article, U.S. officials believe that lowering standards on plain vanilla ABS poses more of a threat to financial stability than raising them for riskier products. While the officials are sympathetic to E.U. efforts to boost capital markets and reduce companies’ dependence on bank loans, they believe it is unclear why the preferences would only apply if all issuers and other connected firms are based in the E.U.

SFIG’s High Quality Securitization (“HQS”) Task Force has responded to several HQS proposals, including the European Commission’s consultation on an EU framework for STS securitizations in May and the BCBS-IOSCO consultation on its criteria for identifying simple, transparent and comparable securitizations. If you would like to join the HQS Task Force, Jennifer.Wolfe@sfindustry.org

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