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Alternative Market Briefing

FSB evaluation finds Securitisation reforms have enhanced market resilience

Wednesday, July 03, 2024

Matthias Knab, Opalesque for New Managers:

The Financial Stability Board (FSB) has released its preliminary findings from an evaluation of the effects of G20 financial regulatory reforms on securitisation markets. The report, which focuses on reforms implemented since the 2008 global financial crisis, suggests that while the overall impact has been positive in terms of enhancing market resilience, some challenges and unintended consequences remain.

Key Findings:

1. Improved Market Resilience

The FSB's analysis indicates that risk retention requirements and higher prudential standards have generally enhanced the resilience of securitisation markets. Complex structures that contributed to the financial crisis, such as securitisations of subprime assets, collateralized debt obligations (CDOs), and re-securitisations, have declined significantly. The quality of collateral underlying securitisation deals appears to have improved in some asset classes, particularly residential mortgage-backed securities (RMBS).

2. Shift in Risk Distribution

The reforms appear to have contributed to a redistribution of risk from banks to the non-bank financial intermediation (NBFI) sector. Banks have shifted towards higher-rated tranches, leading to an overall decrease in their risk-weighted asset density. However, the FSB notes that this shift is part of a broader trend of increased ......................

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