Securitisation and Covered Bonds: the work of

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1 Securitisation and Covered Bonds: the work of the European Banking Authority to date. Massimiliano RIMARCHI April 4, 2014 EIFR Paris

2 A busy working group at the EBA SECURITISATION RTS specifying the securitisation retention rules and due diligence requirements; submitted to COM [ ] ITS harmonising measures to be taken by Competent Authorities in case of noncompliance; submitted to COM [ ] Draft Guidelines on the significant risk transfer for securitisation transactions; stakeholders consultation closed [ ] Call for Advice on the appropriateness and effectiveness of retention rules and due diligence requirements; during 2014 [ ] EU Commission Green Paper Long Term Finance to the real economy: the role of securitisation; during 2014 [ ] COVERED BONDS Close correspondence between the fair value of the covered bonds and the fair value of the assets which justifies that gains and losses on liabilities; published 09/2013 [ ] EBA Covered Bonds Report: identification of principles of best practice (ESRB mandate) and criteria and boundaries of covered bonds risk-weight preferential treatment; soon to submit to COM and ESRB [ ] Follow Basel work on re-defining securitisation capital requirements framework; [ ] 2

3 The EBA covered bond report (1) 2 Mandates behind the report: ESRB Recommendation E (12/2012): EBA is requested to deliver to the ESRB an interim report setting out the principles of best practice in relation to covered bonds which it has identified together with national supervisory authorities [ ] particularly in relation to the quality and segregation of cover pools, insolvency remoteness of covered bonds, the asset and liability risks affecting cover pools and disclosure of the composition of cover pools CRR Article 503 and Commission Call for Advice: Is preferential risk-weight treatment appropriate for all instruments qualifying? Are the qualifying criteria (as per CRR Article 129) appropriate? Should Aircraft Loans and Residential Loans secured by a guarantee receive preferential treatment as cover assets? Is the national derogation on the 10% limit for senior own-issued RMBS/CMBS in a cover pool appropriate?

4 The EBA covered bond report (2) Vast majority of EU Member States have to date a national legal covered bonds framework - the spectrum of regulatory practices in the EU is very wide: Issuer model: Universal Bank / Specialised Issuer (several versions) / SPV mechanism / etc. Admitted Asset Classes: Residential Mortgages / [ ] / Aircraft Liens / Loans to Exporting Firms Coverage Principles: Nominal / NPV / NPV under stress / Prudent Market Value / etc. Min. Over-collateralisation: none / [ ] / 2% stressed / over 40% nominal / etc. (what happens to voluntary OC?) LTV criteria: eligibility limit / coverage limit / different % / Market or Mortgage Lending value etc. / Frequency of re-evaluation Monitoring and Supervision: Cover Pool Monitor / Public License Authorisation Notification / Reporting Requirements Disclosure to Investors: ECBC templates ICMA template loan-by-loan (UK)

5 Long Term Financing of the real economy.. [EU Commission Green Paper on Long term Financing of the real economy March 2013] EU Commission Communication on Long Term Financing of the real economy March 2014 [ ] the Commission will work on the differentiation of high quality securitisation products with a view to ensuring coherence among financial sectors and exploring a potential preferential regulatory treatment compatible with prudential principles EBA looks with interest and very closely at the developments in this area, including at the EIOPA work on Long Term investments and the criteria for the differentiation among securitisation classes therein with a particular view to the banking aspect of the securitisation which is not limited to the investor side (EIOPA) but also to the issuer side.

6 Questions?

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