"Buoyant" is the word that springs to mind when looking back on the Global ABS conference last week in Barcelona. Buoyant and optimistic. For those of us old enough to have worked through the "great financial crisis" (it still seems wrong to use the adjective "great" in that sentence) it certainly felt like the sun was a little brighter and the mood a little lighter compared to previous years.
Regulatory developments are still very much driving the market. It was back in April this year that EU leaders called for a revitalisation of the capital markets union, noting how the regulatory response was ineffective and preventing a proper functioning of the market. To coincide with the Global ABS conference AFME also released their 5-point plan on how to get the EU Securitisation market back on track.
There is nothing strikingly new in these proposals; and that is not in any way meant as a slight. It perhaps speaks more to a frustration that it has taken so long for there to be momentum in driving these changes.
As one panelist at the Basel panel on opportunities for non-banks noted, it is rather like "being a botanist and simply assuming each plant needs the same conditions to thrive". Different plants need different soils, different levels of light, different amounts of water and nutrients....." The analogy is clear. The regulatory response needs to be just as nuanced; it is perhaps just as much part science as it is part art.
Looking back on this time last year, we see that the European CLO issuance has doubled and with a relatively low default environment of its underlying portfolios there is some reason for the optimism. Fitch Ratings are keeping the default outlook for the underlying debt at 4% this year (which is unchanged).
SRT (significant risk transfers) is also likely to be the space to watch over the coming year and has attracted much more attention recently. It was a topic discussed at various points during the conference, and with differing structural and regulatory environments between the US and Europe it will be interesting to see how these factors continue to drive the patterns of use.
Soon we will all be settled back into our daily work routines and the sunny corridors of the Global ABS conference will be a distant memory. But if we can manage to hold on to that optimism and buoyancy it may be enough to carry us through a period of some meaningful regulatory changes and ultimately the revitilisation of the securitisation market.
Let's watch this space.... hopefully this time next year we will be basking in yet more sunshine and optimism.
Related links
ESG and Securitisation
"Sixteen years after the great financial crisis, Europe's regulatory response remains incomplete and therefore disproportionate to the risks associated with securitisation"
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