主持人 / Moderator:
Jason Kravitt, Partner, Mayer Brown; Secretary of the Board, SFIG
讨论嘉宾 / Panelist:
Ann Rutledge, CEO, R & R Consulting (Left 1)
Sam Pilcer, Managing Director, Credit Agricole CIB’s Securitization Group (Left 2)
Howard Kaplan, Senior Partner, Deloitte; Board of Director, SFIG (Right 3)
Catherine McCarihan, Co-Chair of China Committee, SFIG (Right 2)
Sairah Burki, Director of ABS Policy, SFIG (Right 1)
编者按 / Synopsis
相比之下，金融危机后的美国已对其证券化市场展开了深刻的反思和制度变革，其中的经验和教训无疑为我们提供了宝贵的借鉴。美国证券化行业组织（SFIG，Structured Finance Industry Group）的董事会秘书、资深法律专家Jason Kravitt，在2015年中国资产证券化论坛年会上主持的“美国证券化监管改革对中国的借鉴（SFIG 组织）”的专题讨论，集结了来自美国证券化领域的各路精英，为我们全面剖析了美国证券化市场发展的问题和教训，其中包括：（1）如何警惕证券化市场的膨胀信号，监督保证市场的适度发展；（2）从风险评估的实时调控来反思可交易性的弊端；（3）如何协调发行人、投资者、债务人等主体之间利益的一致性，以此保证资产的信用质量；（4）监管如何增加金融机构承担风险的能力并限制其参与高风险活动以控制系统性风险的发生；（5）重视信息披露的透明度以及加强监管规则应对复杂化的结构产品的更新等等；（6）精简出10条美国证券化危机中得来的教训；（7）对中国资产证券化市场目前的发展阶段进行了相应的评价和建议。
Chinese Securitization Market has already became the biggest one in the Asia-Pacific region, and is estimated to become the second one among the world. With the ever-growing securitization scale, how to learn from the lessons and experience of mature oversea securitization market is an important topic to regulators and practitioners.
In comparison, America has done some serious reflection and market reform after the financial crisis which offers us valuable reference. In 2015 CSF Annual Conference, the panel discussion "The US Securitization Regulatory Reform: Lessons learned for the Chinese Markets (organized by SFIG)" which is moderated by Jason Kravitt, SFIG's secretary of board of directors, legal specialist brought professionals from different institutions together and analyzed the problems and lessons on the development of American securitization market thoroughly for us, which includes: (1)How to look out the signs that indicated securitization market may be overheating and ensure the market's development is in moderation; (2)Reflect the disadvantage of tradability from the perspective of risk evaluation; (3)How to make the alignment of interest among different subjects to ensure the credit quality of the assets; (4)How to control systemic risk by upgrading financial institutions' ability to handle risks and disincentivizing banks from engaging in certain high-risk activities; (5)Take care of transparency and innovative regulations updated with increased complexity of structured products; (6)Top 10 lessons learned from the securitization crisis in the U.S. ; (7) Put forward some proposals to the development of Chinese securitization market.
All in all, the seminar could be regarded as a great feast of securitization knowledge.
演讲实录/ Transcript of the speech
Hello, welcome. My name is Jason Kravitt.
I don’t know if any of you have heard of the name of the mayor of Chicago, but he used to be President Obama’s Chief of Staff. His name is Rahm Emanuel. When the financial crisis was at its height, he was quoted, saying, “You should never waste a good financial crisis.” What that means is if the market needs reform or you need to make some structural changes, then a crisis is an opportunity to do it, because everybody will be willing to make the changes for the first time. We aim to use the crisis as a background and tell the audience what we’ve learned from it so that both our market and China’s can take advantage of that. We’re lucky to have a very distinguished panel to discuss those issues today. Let’s start with Sairah.
Hi I’m Sairah Burki with SFIG, where I run ABS policy.
我叫Catherine McCarihan，是美国银行和Merrill Lynch资产支持证券业务的国内顾问。我很荣幸能够成为SFIG中国市场委员会的联合主席。
My name is Catherine McCarihan, and I am internal counsel for the Asset Backed Securitization business of Bank of America and Merrill Lynch. I’m proud to be the co-chair of the Chinese Market Committee for SFIG.
I am Howard Kaplan, with Deloitte & Touche. I’ve been in this industry for 30 years. I’m proud to be a board member of SFIG and I enjoyed a very interesting career in securitization.
我叫Sam Pilcer，在Crédit Agricole工作。从20世纪初期开始，我们公司就与中国有业务往来。公司分别在北京、上海和广州设立了分支机构，因此我们活跃在中国市场。同时，我们也在其他国家开展证券化业务，比如巴西、欧洲和美国。在最近的2、3年间，我对中国的证券化市场十分感兴趣。
I am Sam Pilcer with Crédit Agricole. Our business has had operations in China at the beginning of 20th century. We’ve got active branches in Beijing, Shanghai, and Guangzhou, so we’re very active in this country. We’ve started our ABS businesses in other countries as well, particularly in Brazil, as well as in Europe and the U.S. I’ve been interested in Chinese ABS market in last 2 or 3 years.
My name is Ann Rutledge. First of all, I would say I’m very lucky to have participated in China’s futures reform policy in the 80s and 90s by working in the Hong Kong futures exchange. I’m very proud to be among this distinguished group today and very happy to be part of the securitization industry. It has a bright future.
Right, let’s start the questioning. First of all, with the benefit of hindsight, Howard, what signs new there that we now realize indicated our securitization market was overheating? And as we go through those signs, I’d like you to discuss why people started processes that they went through. Maybe you can distill things down to a few signs that people should look for in the future that generically indicate that the market may be in trouble.
Thank you very much, Jason. I’d like everybody to think for a moment about the concept of moderation. Imagine you go to your doctor because you feel ill, and he asks you what you did yesterday, and you said you drank 8 cups of coffee for breakfast. The doctor will tell you that’s not good. 1 cup, 2, maybe 3 is fine, but 8 cups not good. And he asks what you had yesterday evening, and you say 8 glasses of red wine. The doctor says that’s not good either, maybe 1 or 2 glasses, but 8 is not good. Now let’s think about the concept of an airport. It has 2 runways that were built 20 years ago, when the planes were smaller. Planes carried fewer people and landed maybe one every 8 minutes. Now planes are bigger and they carry more people and equipment. It takes longer to get these people and equipment on and off, and you still have the same size runway, and instead of every 8 minutes, you have a plane landing every 4 minutes. No one wants to spend the night at the airport either, because tomorrow there will be more flights, more people, and more equipment, and now delayed flights are slowing down the next day’s flow.
When I think about what was going on in the securitization industry in the 2000s, I wonder if we saw some of these signs coming around. Think about, for example, the offering document process. It got very complicated, and it started to take a very long time. Deals got more complicated—you had many different contributors and assets in the same deal. Consider also the concept of aggregation. Sometimes deals existed with 3 or 4 originators. We couldn’t always discern whether one was more sophisticated than the other. Sometimes the risks were hidden, because everyone was doing their best to try to aggregate a pool and describe all of what was included in that pool. That led to larger offering documents, which took more time to produce, which meant that dealers had to more carefully tailor deals to what investors need. So this meant it took more time to structure securities and more time to explain these structures. Eventually we just had too many deals happening at the same time that were too complicated to be quickly and efficiently described. Some deals were put off until the next month, but the next month, you had even more deals. For average transactions, documents were given out to the potential investors later and later in the month, and because of large supply of deals coming to the market and fear of missing these deals, investors had to make decisions very fast. We’ll hear a bit later about some of the changes that were brought into the market.
Let’s look at the mortgage market. In the residential mortgage market, we found that as market expanded, you had this proliferation of what we called “affordability products.” If we remember back in the earlier days of the mortgage market, the greatest form of risk retention was what we called a "down payment". It was a good faith deposit on the mortgage, so that if at some point the borrower decided they didn’t want to pay their mortgage, they couldn’t get their down payment back. As we moved into the 2000s and started to approach the credit crisis we began to see the proliferation of affordability products. Instead of having a 75% LTV, with the concept that now prices will continue to appreciate, you’d have more and more lenders offering 80 and 90% LTVs, or offering second liens to assist someone to get into a home, and then it went to assisting to get into a larger home. Some of these signs pointed to the fact that maybe there was stress in the market.
If you look at the market from a different angle, certain accounting regulations allowed companies to take profits on their transactions even when they did not sell everything. Today it is very difficult to get off-balance sheet treatment, but it wasn’t always so difficult. In many transactions, you had sellers that could not or chose not to sell 100% of a transaction. The piece they held onto because they did not have a willing buyer at a price that they felt comfortable with. But yet, they had to report their assets on their books, so they had to come up with some ways to record that asset. They had to choose assumptions to value the asset. Those assumptions were never really put to test in a stressed market, so not all of those assumptions proved to be true. You also had companies that were in a cycle of doing transactions and reporting gains in order to meet the investors’ expectations. Some of these companies were public, and some ended up raising more equity capital because of the gains that they were reporting, which propped up their earnings. But those gains had never been tested in a stressed market.
So Jason, I think the signs were out there. In moderation, maybe none of those things would have been a problem, but this was not moderation. There was a tremendous supply of product coming into the market in almost all assets classes. We saw some shortcuts taken in order to get transactions into the market fast enough to clear for the next transactions. In hindsight, if you don’t give investors enough time to assess the risks of the transactions, you’ll probably get into trouble. We’ve learned a lot from the U.S. market during that period of time about many of the different asset classes. I think we’ll find that some of the matters were dealt with very directly, and I think we’re definitely in a safer market today.
Sam, Howard did a good job of describing in general terms what happened in the market. Where are we along the line from health to danger in Chinese market today?
That’s actually a good lead in, and certainly I’m familiar with the frothiness and excesses of what happened in the U.S. ABS market about 10 years ago. To some extent, the Chinese ABS market today looks somewhat like what the U.S. ABS market looked like in about 1985 or 86. The Chinese market itself is over 90% CLOs. From what I can see, it’s a way of syndicating Chinese commercial lending risk through the interbank market, and as a non-Chinese bank not playing in that market, we’re not the sort of institution that’s going to have any sort of interest in that much exposure to the Chinese CLO market. Just in terms of Chinese consumer credit particulars, you don’t have the sort of issues that you had in the mortgage market that led to excesses in the U.S.
In the Chinese auto market, in 2014 there were about 8 Auto ABS deals and that’s the extent of exposure we’ve seen in China. Today’s Chinese auto loans tend to be done at about a 70% LTV on cars, which means the borrower is putting a 30% down payment on the car, and in the U.S. that’s just unheard of. Most prime auto financing in the U.S. tends to be at about 100 to 110 percent of the cost of the vehicle, and despite that the U.S. Auto ABS market saw none of the stress that other parts of the U.S. ABS markets saw in the crash. I don’t anticipate there’s going to be a big disaster in the Chinese Auto ABS market even though it is going to have to expand, because there should be more than 8 deals annually.
From what I can see there doesn’t seem to be a Chinese RMBS market of any significant size just yet. I don’t know enough about the Chinese RMBS market to speak, except that I have a feeling it’s much more conservative than the U.S. RMBS market, which, as Howard indicated, ended up being 100 to 110% LTV market. Another aspect of the U.S. mortgage market in the early 2000s was that it really fed speculation on homes. Never mind the fact that people were buying more house than they could afford, or buying second homes, or taking out home equity loans, a lot of that market was just speculation on people flipping houses. Ultimately, of course, that didn’t end well. The one other thing that I don’t see at all in the Chinese market, which certainly happened in the U.S. market and globally, is that there’s no arbitrage product out there. A lot of what happened in the U.S. and Europe about 10 years ago was the issuance of massive amounts of arbitrage product to investors. So not only were the underlying securities too overadvanced in terms of underlying collateral, but then there was further arbitrage product being issued. If you’ve heard the term ABS CDOs, SIVs, that was all characteristic of those markets at that time. There doesn’t seem to be any evidence of that in the Chinese market. It’s typically referred to as "resecuritization", and I don’t see it here. I think it’s a good part of the reform that came with the crash 8 years ago, and that’s about the best I can say in summary.
The way I interpret your answer is at this point you don’t see the same risk in the Chinese market as we saw in the U.S.?
It’s nowhere close to there.
Now let’s switch to Ann, to look at this in a different light. I’d like you to discuss what happened in the U.S. market in the evolution of the products that were produced by the market. Most investment products were in large part treated as trading products, so let’s discuss what that means to a market. And then could you also briefly go through what role you think the rating agencies played in the financial process.
So in picking up the theme of trading, there’s a lot of discussion in this conference about the tradability of ABS (there was in the last session), and also in the discussions involving P2P, there are conversations about whether P2P financing can become tradable. I think it’s interesting that the Chinese market is starting out asking questions that only developed in the later stages of the U.S. market, and I think the tradability question is really where our market broke down.
Sam talked about arbitrage products, but I’m not sure if you’re familiar with the term. I know you know CDOs and so on. I’m going to talk about arbitrage products in a different way, and I’m going to start by talking about something that happened in 2003. We had SARS, and SARS in Hong Kong produced a very interesting scenario. There were two teaching hospitals, and one teaching hospital declared that the mortality rate was 4%. The other hospital said the rate was 10%, but they were talking about the same population. So what was the difference? The difference was that the “4%” people were using a traditional corporate finance way of looking at risk, and the “10%” people were using what we all know as a “static pool approach.” So in the static pool of risk, you look at risk cumulatively, not at average risk. This is the foundation of ABS, the way of looking at risk using new data that allows for genuine arbitrage, that makes it interesting.
This picture illustrates what I’m talking about.
The pink line here represents the view of risk on a corporation. The black line is the view of risk on a static pool—it’s cumulative. I just want to point out that many of us believe that that risk, where the picture says 5%, but actually with the passage of time, the remaining risk is decreasing. So from that we can extrapolate to say that asset volatility on a well-structured ABS is decreasing, and that’s a dimension of the analysis that wasn’t part of the rating pattern. In order to properly assess the risk of an ABS you need to know what the current risk is, not the initial risk. What this means is that when rating agencies offer ratings, they’re using an assumption like this.
They project the cumulative loss, and they use the uncertainty of today and project it forward. In fact, what’s going to happen over time is just what I said—
In a well-structured deal, if the risk turns out to be what was projected to be in the beginning, then the estimation will get more and more precise, the remaining risk will get smaller and smaller, and the capital required to cushion that risk will also get smaller. But if you have a system that doesn’t keep track of risk and that relies on initial assumptions, then you have the opportunity to play a game.
这个“赌博”的目的是夸大报道资产池的质量，因为你不可能在一年、两年或几年内被察觉。现在，如果你是一个购买并持有的投资者，那么这种情况是不会持续的，在未来某一时刻你会认识到你的错误。你可以相信或者不相信可交易性是金融危机的驱动力，但我想要指出，总的来说，在结构金融市场中，如果你观察不同的市场版块，这里会有资金版块，例如ABS和RMBS等，接着有CDO、 RMBS CDO、CDO、SIVS等。所有的这些版块都基于评级而非经验数据来分析风险，仅有资金市场使用数据。根据现在发布的监管法规，我看到如今的监管偏向于管控行为、降低风险和促成市场的万无一失，但我甚至不确定我们现在所讨论的这些基础问题是否被监管计划考虑在内。
The game is to make exaggerated reports about the quality of the pool because you won’t be discovered for a year, two years, two and a half years out. Now, if you are a buy and hold investor, this kind of situation is unsustainable, and at some point in the future you’ll realize that you were wrong. Now you can believe me or not about tradability as the driver of the crisis, but what I’d like to point out is in the structured finance market overall, if you look at the different types of market sectors, you have the funding sector, the ABS/RMBS, etc. then we have CDOs, RMBS CDOs, CDOs squared. We have what Sam talked about- the SIVS, and all of these sectors analyze the risk based on rating, not based on empirical data. Only the funding market uses data. When I look at the regulations coming out today, I see that the regulations are geared towards controlling behavior, reducing risk, and making the market foolproof, but I’m not sure that the fundamental issue we’re talking about here is even in the regulatory plans.
现在开始讨论我们提炼出来的问题。Sairah 和 Catherine将会谈及每一个问题，讨论解决问题的目标，再分析已经通过的解决问题的规则以及这些规则是否有效。现在开始讨论第一个问题：损害资产信用质量的失调动机。有请Sairah。
Now we’re going to look at the problems we’ve distilled. Both Sairah and Catherine will go through each problem, distill a goal to fix that problem, then look at the regulations that were passed to fix the problem and analyze whether they have been successful. So let’s start with problem #1: misalignment of incentives, which eroded the credit quality of the assets being originated. Sairah, why don’t you start?
Thank you. I think Ann, Howard and Sam all touched on this issue to certain extent, but one of the key issues that became very obvious during the crisis was the misalignment of risk between issuers and investors, particularly in certain asset classes. Due to this misalignment, originators and securitizers had little incentive to ensure that loans were of sufficient quality given that they weren’t holding them. To Ann’s point, it was not a buy-and-hold model. Regulators determined in the years during and following the crisis that a well-functioning stable market did require a certain level of risk alignment between securitizers and investors. One of the key regulations that came out of the crisis was the Credit Risk Retention rule passed in the U.S. by 6 of the major regulatory agencies, which would require securitizers to retain at least 5% of the credit risk of the deal. At SFIG we believe that these requirements generally do encourage sound underwriting and help align risk, but at the same time there are elements of the rules that we believe have had quite a negative impact on certain asset classes.
For several asset classes, for Cards and Auto, for example, the rules are not necessarily optimal, but at the end of the day they do allow these markets to continue to function quite well and provide for appropriate risk alignment. For RMBS, we would say the market reaction was split. To Howard’s earlier point, investors are generally concerned that there still is not sufficient skin in the game. For qualified mortgages, or rather for mortgages that are deemed “qualified” according to certain requirements, no risk retention requirements exist. The concern is that the “qualified” designation is very broad; it’s not very stringent. You, therefore, have a scenario where the asset class that was deemed to be the cause of much of the crisis ended up with no risk retention requirements which is a little ironic.
The one asset class that risk retention requirements really don’t work for is CLOs. Despite a lot of conversations with the regulators, the final rule ended up requiring CLO managers to hold 5% of the deal. The problem here is that CLO managers are not actually the originators or securitizers, they are investors. They are buying loans for their portfolio. In order to invest in a $500 million CLO, they would have to hold $25 million, and most CLOs don’t have that kind of balance sheet to support that level of risk retention. The risk retention requirements for CLOs are so unfavorable that one of the U.S. trade groups has filed a lawsuit against the SEC and the Federal Reserve.
So just quickly, what’s the overall grade, from A to F?
Excluding CLOs, I’ll give them a B-.
Problem #2: increased complexity of structured products and failure of regulators to innovate with such products work in parallel. Catherine.
The misalignment of risk that Sairah just discussed is probably further exacerbated by the increase in complexity of products, which Howard also mentioned, such that the regulations at the time in the U.S. failed to account for product innovation and left certain segments of the market unregulated. As a result we see that one of the prevailing goals of U.S. financial regulatory reform has really been to increase oversight in unregulated parts of the market, including potentially structured products in order to close any gaps and reduce any regulatory arbitrage. On the positive side, these regulations introduce better controls, greater accountability, and greater transparency so that if problems arise again they may be detected earlier to potentially reduce the risk of systemic failure. However, because there are concerns that previous regulations included gaps, you’ll see that current regulations in connection with financial reform have been drafted so broadly, sometimes with a “one size fits all” approach that they don’t necessarily take into account difference nuances between securitization products. In some cases, you’ll see regulations favor more “plain vanilla” structures rather than transactions that repackage risk.
An example of broad sweeping regulatory reform has been the Title VII Dodd-Frank Derivatives regulations. These were promulgated primarily to oversee the over-the-counter derivatives market, which was virtually unregulated pre-crisis. However Title VII is sweeping in that it not only regulates these CDSs, but it also regulates all types of swaps including the more simple interest rate and currency hedges that are more commonly used in connection with securitizations. Title VII at a high level contains 4 basic initiatives. Number 1: it requires that swap dealers and major swap participants register with the appropriate regulatory authorities such that they are subject to regulatory oversight and supervision. Number 2: it requires that swaps be cleared through a clearinghouse, which is a third party that steps into the trade between the two original counterparties to guarantee both the performance of the swap provider and the swap counterparty by making them post sufficient liquid collateral to cover losses, which is called “initial and variation margin.” Number 3: that even for swaps that are not cleared through these clearinghouses, there are proposals for initial and variation margin to be posted in connection with these uncleared swaps to ensure there are sufficient funds to cover losses. Finally, Number 4: there is extensive reporting of swap position such that there is a central repository in which regulators can get a more accurate view of how these swap positions are performing in the market. The challenge for securitization is that often the swap counterparty is the issuer, which is a special purpose vehicle, and a lot of the Title 7 regulations may not have been designed to address special purpose vehicles.
Additionally, the cash flows of securitization structures are often limited to the amount of funds coming in from the underlying collateral such that it is very challenging to account for margin requirements. So here we have a broad sweeping regulation that may produce an unintended consequence in that interest rate and currency swaps that are used legitimately by issuers and investors to hedge interest rate and currency risk, but because of the margin requirements, this may become prohibitively expensive and the securitization structure may become unavailable. I believe the other, perhaps unintentional consequence may be that these regulations tend to favor plain vanilla structures.
Thank you, Catherine. Another area that policy makers are focused on is what we’re calling “high quality securitization.” It speaks to the point Anne made earlier, that these initiatives are not necessarily tackling what the underlying issues were in the crisis. Just for some background, policy makers in Europe and in Basel have put forward a series of proposals using various different descriptors—simple, standard, transparent, comparable—all basically getting at the same thing, which is to try to design a framework that would designate certain securitizations as high quality. Those securitizations would ultimately receive preferential regulatory treatment, whether it be capital treatment, liquidity treatment, investment permissibility and the like, and all other securitizations would not. The problem is, in Europe, you have a situation where the market is not liquid. Policy makers are trying to inject liquidity into the market and use securitization as a way to do so. They are, of course, very aware that there is some stigma associated with some types of securitizations and that investors might be shying away from ABS and MBS. They believe that creating a slice of the market that’s labelled as “high quality” will incentivize investors to invest in those assets.
The concern that many SFIG members have on the U.S. side is that applying this type of framework to the U.S. would potentially break what isn’t broken. The U.S. already has a very liquid market with asset classes that are performing very well and are of high quality. But if they don’t happen to meet all the criteria that are laid out in Basel’s proposal, due sometimes to the fact that you have different structures in the U.S. vs Europe, deals that are actually very high quality and very liquid would suddenly be deemed “not high quality” and thereby lose their liquidity. This has caused a lot of concern among U.S. market participants.
So, what grade do we give the solutions to problem #2?
I would say maybe a B.
I think it’s C+ or C-. Let’s go to problem #3: lack of transparency may have led to inappropriate risk management. Sairah is starting with this one.
缺乏透明度是危机中一个非常明显的大问题。从危机中产生的许多最重要的规则都是披露要求，例如由证券交易委员会通过的Regulation AB 修正案。
This was obviously a huge issue that became very obvious during the crisis—lack of transparency. Some of the most important regulations that came out of the crisis were the disclosure requirements, Regulation AB II that was passed by the SEC.
We are still in the early stages, so, Jason, I won’t assign a grade to this one yet, but what the SEC is trying to do is ensure investors have enough information to make informed decisions at the end of the day. What they have decided and are requiring is that for certain asset classes, issuers will have to provide loan level disclosure. This will be required for Auto, CMBS, RMBS, and resecuritizations. Issuers won’t have to comply with the loan level requirements until 2016 because they are so sweeping. But they are working very diligently to make comprehensive changes to their processes and their systems. Another interesting thing—a bit of an unusual situation—is that while we have the final Reg AB II rules, the SEC has kept several proposals open, such as the application of loan level disclosures to certain additional asset classes, including student loans, equipment and card. The other interesting open item is the potential application of public style disclosure and reporting requirements to the private 144A markets. If that were to happen that would be a very significant change for the securitization market and something to watch out for.
Ultimately, we’d encourage an appropriate balance where investors receive enough disclosure to make informed credit decisions but issuers don’t face a huge cost burden or privacy and competitiveness concerns. A reduction in either supply or demand would reduce funding to the real economy.
Okay, now we’re going to problem 4. Interconnectedness in market participants created systemic risk that contributed to the overall financial crisis.
The fourth and final regulatory reform that we’re going to discuss, though obviously there are many more, is the desire of U.S. regulators to reduce systemic risk by ensuring that financial institutions and banking entities that play a significant role in the financial system 1) be adequately prepared to withstand or absorb losses during future periods of financial or economic stress, and 2) do not engage in activities that are perceived to be high risk as a result of the crisis. In terms of making sure that banking entities are prepared, the U.S., like many other nations, adopted international guidelines known as Basel III, which contains three major initiatives. 1) It changes the risk-based capital requirement such that banks have to hold more capital against their risk-weighted assets to further protect the bank’s depository customers from any losses the bank suffers on its securitized assets. 2) It introduces a new supplementary leverage ratio, which really acts as a backstop to the risk based capital requirements by ensuring that the capital the bank is holding is not overleveraged. 3) It brings a new liquidity coverage ratio to ensure that the bank has sufficient liquid assets to meet its clients’ short term liquidity needs. This includes securitization exposures and derivatives. U.S. banks have always had to hold tier 1 capital against their on-balance sheet assets, but as a result of the new leverage ratio, banks will now also have to hold tier 1 capital against their off-balance sheet assets, including securitization exposures from credit commitments to SPVs. Finally, with respect to the new liquidity coverage ratio, banks need to hold certain high quality, liquid assets that can be immediately converted into cash against all total net cash outflows, which are the funds that flow out of the bank within any 30-day period. The liquidity ratio would also include credit commitments to special purpose vehicles. The combination of these three things will cause banks to hold more capital and higher quality capital against their securitization exposures so that banks will truly have to reconsider what types of securitization exposures they’re willing to invest in, what securitization products they are willing to offer, and at what price.
Basel III has actually decreased liquidity in the market by saying that you can’t use those securitized assets as “high quality liquid assets.” I think that by making a rule that says “X is high quality and Y isn’t,” for purposes of a ratio, you’ve made “X” liquid, and you’ve made “Y” unliqulid.
You want to add anything?
Yes. The other aspect of trying to reduce systemic risk is by disincentivizing banks from engaging in certain high-risk activities. One regulation that addresses this is commonly referred to in the U.S. as the Volcker Rule. The rationale behind the Volcker Rule is really to separate the bank’s investment activities from the bank’s traditional commercial activities. There are certain activities considered to be high risk for the bank, and this rule prevents banks from engaging in these activities if it would put the bank’s ability to provide more traditional services, like giving credit or financing to its customers, at higher risk. At a high level, Volcker prevents banks from engaging in proprietary trading for its own account, and it also prohibits the bank from having certain ownership interests in what the rule defines as “covered funds,” which is really intended to capture private equity or hedge funds. In terms of the impact of securitization, covered fund and ownership interests have been drafted so broadly that although securitization activities were not intended to be prohibited, you’ll see that in a lot of U.S. securitization transactions, market participants have really had to do a deeper analysis of how to determine if a Volcker problem exists. In some instances, because the Volcker Rule does not grandfather in existing securitization exposures, if any legacy securitization transactions don’t comply with Volcker, banks need to divest themselves of these securitizations.
So I think we generally consider the Volcker Rule a problem. So what’s the grade on this?
因此，我们有一个B-, C+, 未完成等级和一个C-。我确信他们能够运转地更好。我想要提出10条从美国资产证券化危机中得到的教训。
So we have a B-, a C+, an incomplete, and a C- . I’m sure that they can do better. I’d like to give you, for a little amusement, a list of the top 10 lessons learned from the securitization crisis in the U.S.
1.There is no manner in which to save a transaction through structuring if credit underwriting is done poorly. This was a really major part of the securitization crisis—you think you can solve it through structuring, but you can’t solve bad assets through structuring.
2.Any shortcuts taken to make the process go smoothly will almost always come back to hurt the party that took them.
3.If something is too good to be true, it’s almost always too good to be true.
4.Nothing + Nothing * Nothing will always equal nothing. If there is nothing to a deal, no substance, there is no substance to the deal.
5.In times of stress, all correlations tend to move towards 1.0. Now what that means for those of you who are not mathematically inclined is that in times of financial stress, everything is correlated with everything else. No matter how different you think markets are, no matter how far apart you think they are, when everything starts to fall apart, no market is safe.
6&7.Alignment of interest between issuers and investors is not enough. That’s usually what we talk about when we draft rules, the retention rule specifically. But interests of obligors on the underlying obligations must have their interest aligned with issuers and investors. Equally importantly, the interests of employees of officers of institutions must have their interests aligned with those of their employers. What I mean by the first point is if the obligors on the underlying assets don’t suffer in some way, if they don’t pay, then the transaction isn’t going to work because there’s a misalignment of interest. The best example of that is a mortgage where there’s no down payment and is non-recourse. Anybody can walk away from that mortgage; there is no alignment of interest. What I mean by the second point is that when you have compensation formulas for employees, they should be based on what you’ve done in the long term (including the short term) and not based strictly on volume but also on quality. If an employee is going to make a lot of money just by entering into a lot of deals, whether they turn out to be good quality or bad, then that person’s interests is no longer aligned with those of the employer.
8.When the primary goal of issuance is to make a tradable asset instead of making an investment asset, the temptation for substance to suffer is great.
9.Don’t ignore the advice of your lawyers and accountants or put them under pressure to cut corners.
10.Every crisis is different. Don’t look back at the last one so much that you don’t see the next one coming. This whole panel has been looking back, but you always have to be thinking about how the next one could be different.
I realized I have a final favorite rule that I’d like to add: The assumptions when you model are not reality. You get mesmerized by your models and your assumptions, but they never reflect the real world. While a model is very important to securitization, it only tells you what questions to ask, and it never tells you the answers to those questions.
So that’s what we learned from the crisis, and I hope it’s going to be helpful to you in putting together future markets. Thank you for your interest.