Banks Warn Stricter Securitization Rules Risk Credit Drought

Banks are lobbying against international plans to tighten rules on securitization claiming they will tie up capital and starve the economy of credit.

Credit Suisse Group AG, BNP Paribas SA and Deutsche Bank AG are among lenders that have written to the Basel Committee on Banking Supervision in Switzerland to voice concern about reforms to be implemented from 2014. In a securitization, banks repackage assets, usually loans, and sell them in slices to outside investors.

Regulators are overhauling the rules after the widespread use of the technique in the U.S. mortgage market contributed to the financial crisis by spreading risk from lenders to the so-called shadow banking sector. The firms say the plans, which will force banks to hold more capital against any tranche they keep, would make transactions prohibitively expensive.

“The imposition of rules that serve to materially increase the capital requirements of securitizations could have the unintended consequence of creating disincentives for banks to be active in the securitization markets,” Rudolf Bless, Credit Suisse’s deputy chief financial officer, and Brian Chin, head of securitized products, wrote in a letter to the Basel group published this month. That could undermine “credit supply and overall liquidity of the global economy,” they wrote.

In recent months, banks have begun to look again at securitizations as a way of meeting the higher capital targets—without cutting lending or raising fresh equity.

The committee at the Bank for International Settlements in Basel will carry out an impact study of the securitization proposals in the coming weeks, Bill Coen, the group’s deputy secretary general, said in a telephone interview. The plans are likely to be on the agenda for the June meeting, he said.

Spokesmen for Paris-based BNP Paribas, Deutsche Bank in Frankfurt and Zurich-based Credit Suisse declined to comment.

In traditional or so-called cash securitizations, assets leave the bank’s balance sheet, freeing up capital and allowing the lender to extend more loans. In so-called synthetic deals, banks retain the assets and buy protection against some of the potential losses from investors, often in the form of credit-default swaps. That allows the lender to reduce the capital regulators require it to set aside against the assets.