Collateralising credit claims as securities

Transcription

1 Collateralising credit claims as securities 1

2 Collateralisation of credit claims A convincing business case Objectives and features of the project Current status of works Duplicability of the vehicle 2

3 Collateralisation of credit claims A convincing business case Objectives and features of the project Current status of works Duplicability of the vehicle 3

4 A convincing business case Increasing needs for collateral Bank s existing marketable collateral is already largely used Liquidity is available but does not circulate under uncovered format Combined impact on collateral demand of liquidity regulation (LCR) and OTC derivatives reform (EMIR) up to 4,1 trillion* Need to revive the interbank market and decrease central banks intermediation calling for an optimisation of collateral usage Development of triparty management services provide answers Collateral must not be captive of a specific context (domestic) or usage (with NCBs only) Operational efficiency and interoperability is key for an optimal collateral mobilisation * BIS (2013), Increased demand for collateral assets : implications for markets and policy, CGFS Papers n 49. 4

5 A convincing business case Credit claims: a significant part of banks balance sheets Stable funding source for the euro area economy* : NFCs rely on bank loans for 40% of their financing needs in the euro area (for less than 10% in the US) Especially for SMEs as 25% of MFI loans smaller than 250,000 Share of MFI lending to NFCs in total MFI assets in FR and DE : 10% ; IT and ES : 20% but remain an underused source of collateral Use of credit claims as collateral essentially with central banks and on a domestic Close to nil on cross-border basis and interbank market Underused source of collateral due to legal impediments and operational constraints *ECB(2013), The use of credit claims as collateral for Eurosystem credit operations, Occasional Papers n

6 A convincing business case The market calls for the securitisation of credit claims Clear and unambiguous market support Strong commitment from the sponsor banks Strong support from international banks Interest from European market associations Clear interest expressed by investors In line with several public policy objectives The securitization of credit claims will contribute to finance the real economic sphere, especially SMEs increase the available amount collateral on the interbank market revive the interbank market / decrease dependency on central banks reduce dependency towards rating agencies 6

7 Collateralisation of credit claims A convincing business case Objectives and features of the project Current status of works Duplicability of the vehicle 7

8 Objectives and features A simple and transparent instrument

9 Objectives and features Detailed collateralisation process used in France Credit claims (CC) mobilisation technique using the Collateral Directive (transposed in France via the Financial Guarantee - article L of the French Monetary and Financial Code) Borrower (SME) 1 Underlying CC Sponsor bank 1 A subsidiary (from the same group as the sponsor bank) grants a loan the underlying CC - to a borrower (corporate). Pledge (Financial Guarantee L211-38) Collateralized loan Intermediary Bank (used to transfer the collateralized loan) 2 2 Underlying CC are assigned to an intermediary bank as security interest by the sponsor bank as a guarantee to a collateralized loan provided by this intermediary bank to the originator according to the L article of the French Code Monétaire et Financier. In exchange, the sponsor bank receives cash. Assignment of loan receivables & transfer of the Financial Guarantee L Compartment sponsor bank Collatera lized loan SPV Securities 3 Securities Investor 3 The collateralized loan is sold by the intermediary bank to the SPV s relevant compartment and the underlying CC are assigned as security interest to this SPV s relevant compartment at the same time. In exchange, the intermediate bank receives cash. After selling the loan, the intermediary bank is no longer involved in the transaction. Compartment bank x 4 4 The sponsor bank compartment in the SPV issues securities backed by the collateralized loan and receives cash in exchange. Compartment bank y

10 Objectives and features French project features Simple set- up Common issuance structure and documentation for all sponsor banks Each bank has its own compartment(s) Mutualized setting-up costs Risk control measures Very transparent structure Eligible credit claims only, assessed via NCB ICAS or banks IRB Asset manager and depository, compliant with securities regulation Full segregation of risks among sponsor banks Double-recourse for bond holders Flexibility and efficiency Alignment of security characteristics with those of the underlying collateral Dynamic portfolio of credit claims modifiable twice a week to allow short term loans and cope with prepayment risk Issuance parameters under control of each sponsor bank 10

11 Objectives and features French project features Based on a very transparent and simple (no tranching) structure Robust and risk-adverse Replicable in different jurisdictions Designed to embed risk management measures Cost-efficiency and scalability 11

12 Collateralisation of credit claims A convincing business case Objectives and features of the project Current status of works Duplicability of the vehicle 12

13 Current status of works Project calendar From concept Initiative from High Level Market Place Committee Q1-Q2/2013 Feasibility study groups June 2013 Finalisation of the project blueprint To reality - Q3/ Project launched by six major international banks - Oct Selection of the providers pre-operational phase Currently Q1/ Set up fo the structure - First securities issuances 13

14 Current status of works Market Place project and eligibility assessment in parallel Market Place project Banking community s clear commitment and supportive role of Banque de France Project is now in its pre-operational phase Structure to be set up by Q1/2014 for the first issuance Eligibility assessment Banks requests for eligibility of the securities as collateral Eurosystem s analysis 14

15 Collateralisation of credit claims A convincing business case Objectives and features of the project Current status of works Duplicability of the vehicle 15

16 Duplicability across Europe The business case goes beyond French borders Increasing collateral needs of the overall banking community The initiative relies on a common Eurosystem collateral class (credit claims) Securitisation can be very instrumental in jurisdictions where credit claims mobilisation is facing operational constraints Market support is international Interest from European market associations (ECBC, ERC) Support from international banks and collateral management services providers Interest from international investors Duplication in different jurisdictions Lies on common legal basis stemming from European Directives, subject to local adaptations Facilitated by a very simple and transparent structure Can capitalise on existing or future facilities and infrastructures 16

17 Conclusion Project featured by an obvious market need a clear market support positive externalities The business case goes across borders Current request for collateral eligibility 17