The Financial Stability Board (FSB) has released its final report evaluating the impact of G20 financial regulatory reforms on securitisation markets. The report focuses on the International Organization of Securities Commissions' (IOSCO) minimum retention recommendations and the Basel Committee on Banking Supervision's (BCBS) revisions to prudential requirements for bank securitisation-related exposures in residential mortgage-backed securities (RMBS) and collateralised loan obligation (CLO) markets.
According to the evaluation, these reforms have bolstered the resilience of securitisation markets without significantly affecting financing to the economy. Complex structures that contributed to the 2008 global financial crisis, such as subprime asset securitisations and collateralised debt obligations, have decreased notably. However, it is noted that these markets have not yet faced a full credit cycle, raising questions about their resilience during prolonged downturns.
The report observes a shift in risk from banks to non-bank financial intermediaries, with banks moving towards higher-rated tranches. This trend is more apparent in CLOs than RMBS. Assessing the stability impact is challenging due to uncertainties about whether non-bank entities can handle risks given their funding structures.
Key issues highlighted for national authorities include monitoring risks related to synthetic risk transfers and private credit in securitisation structures. The effectiveness of risk retention requirements for CLOs is also questioned, particularly since much of the global market does not operate under these rules.
Benjamin Weigert, Director General for Financial Stability at Deutsche Bundesbank and Chair of the FSB group responsible for this evaluation, stated: “The evaluation highlights the importance of the G20 reforms in enhancing securitisation market resilience. Nonetheless, recent market developments reinforce the need for authorities to monitor risks and ensure alignment of incentives between securitisation originators, sponsors and investors.”
Ryozo Himino, Deputy Governor at Bank of Japan and Chair of the Standing Committee on Standards Implementation overseeing this report's preparation, remarked: “Evaluations are a core part of the FSB’s mandate... This was the FSB’s first streamlined evaluation focusing on...securitisation reforms.”
This evaluation draws from various information sources including feedback from FSB member jurisdictions and stakeholders. It reflects input received during a public consultation phase initiated by a draft version published in July 2024.
The FSB operates internationally coordinating national financial authorities' work alongside international standard-setting bodies aiming at effective policy implementation for financial stability. It encompasses authorities across 24 countries plus numerous international institutions while conducting outreach through six Regional Consultative Groups.
Klaas Knot currently chairs this organization with its Secretariat based out of Basel hosted by Bank for International Settlements.