Banks Lobby Against Basel Rules Stating Credit Liquidity Risks Will Soar

“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 (CSGN), BNP Paribas SA (BNP) 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 re-package 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.

June Meeting

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….”

Full article