Deutsche Warns Regulations May Wreck Securitization
New accounting rules set to take force on January 1, 2010 will result in a reduction in securitization, according to recently released research by a Deutsche Bank analyst. The new rules — Financial Accounting Standards (FAS) 166 and 167 — intend to increase bank capital requirements. But Deutsche and others believe the new rules will make securitization — once the primary financial tools for mortgage lending liquidity — more expensive. “Barring any significant changes to the regulatory capital framework, this will make securitization a vastly less economic proposition for would-be issuers, as beneficial capital treatment is lost,” Deutsche analyst Katie Reeves wrote. However, securitization won’t completely go away, Reeves wrote. “[O]verall we expect a reduction in securitization as a result of FAS 166/167 and the related regulatory capital impact, we do still expect to see some issuance, in situations where securitization offers a lower funding cost alternative than unsecured debt.” Further complicating the matter are the myriad regulations that vary from country to country. While US institutions will adapt FAS 166/167, other global markets are implementing new International Accounting Standard (IAS) regulations, including IAS39, which establishes regulations for determining fair value of financial assets whose prices fluctuate. The Group of 20 (G20) is trying to solve the discrepancy under the auspices of the G20’s financial stability board. The goal is for this board to serve as an umbrella organization to unify accounting principals. The industry has begun to respond positively to the G20’s efforts, as highlighted in a joint statement from the Securities Industry and Financial Markets Association (SIFMA), Association for Financial Markets in Europe (AFME) and Asia Securities Industry and Financial Markets Association (ASIFMA). “As countries accelerate the pace of regulatory and legislative reforms and encourage renewed, sustainable growth, it remains vital to seek a well-balanced and well-coordinated regulatory framework and guard against the potential for barriers to market entry, distortions to competition, or regulatory arbitrage," the statement said. This crucial issue will be discussed in earnest at HousingWire’s inaugural Distressed Servicing conference, Nov. 16 and 17 in Austin, Texas, where American Securitization Forum (ASF) director George Miller is slated to speak, among other industry leaders. Write to Austin Kilgore.