BIS Joint Forum sees need to revive securitisation market: Endorses Economics of Securitisation

28 July, 2011: BIS Joint Forum released its Report on “Asset Securitisation Incentives,” in July, 2011 the report analyses the incentives for engaging in securitization before the financial crisis and the need for meaningful recovery in the securitization activity post crisis. The report provides for recommendations to the industry for promoting sustainable and responsible framework for securitization.

The report calls for the regulators to develop and implement such framework to ensure that securitization is carried out in prudent manner and it continues to be a source of alternative funding. The recommendations set by the report are as follows:

• Authorities to improve loan origination standards and streamline the incentives for securitization

• Transparency to ensure that the investors and other market participants are informed investors and have access to relevant and reliable information.

• Standardisation of documents, symmetries in transactions, lesser complexities in products and secondary market liquidity

Re-establishing sustainable securitisation markets has been high on the agenda of the Group of Twenty (G20), the Financial Stability Board (FSB), and other international organisations and national governments since the onset of the crisis. According to the International Monetary Fund (IMF) (2009), before the collapse of the securitisation market in 2007 and 2008, asset-backed securities (ABS) and covered bonds provided between 20 and 60 per cent of the funding for new residential mortgage loans originated in the United States, Western Europe, and Australia.

View the full text of the publication, here

[Reported by: Nidhi Bothra]

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