Revision of "Bâle II" Directive gets green light in European Parliament - CAD4 arrives

A Lenterne from the Basel Fasnacht Carnival, 2009
BLOG REPORT BY JOHN MORRISON OF WWW.ASYMPTOTIX.EUE
Brussels, 06/05/2009 (Agence Europe) - On Wednesday 6 May, MEPs debated two legislative proposals in the field of financial services: - proposed directive revising requirements in terms of capital for banks; - proposed decision establishing a Community funding programme for the activities of the three European committees of national regulators (CESR, CEBS, CEIOPS). In their support for the recommendations of each respective rapporteur, they have paved the way for these two legislative acts to be adopted at first reading before the end of the term in office.
Bâle II. "We have agreed on new measures" which this time go beyond the lowest common denominator, said Othmar Karas (EPP-ED, Austria), rapporteur on the proposed "Bâle II" directive on requirements for own funds of credit companies (EUROPE 9893). Amongst other things, the legislative proposal brings in a minimum level of securitised assets which banks must keep on their balance sheets, so that they are obliged to guarantee the quality of the financial instruments which they resell on the market in the form of securities. These highly complex financial products, to which it is difficult to put a monetary value, such as securities backed by high-risk mortgages, have contributed to the spread of the financial crisis worldwide and caused heavy losses among many banks, which have been obliged to turn to public aid to avoid bankruptcy. Lastly, MEPs gave their approval to the compromise which sets at 5% the retention rate for securitised assets and rejected amendments favouring a higher level: German MEPs of the EPP-ED were calling for 10%, the Greens/EFA 15% and the GUE/NGL 20%. By the end of this year, the Commission is to report back on the effects of the new rules and, if necessary, propose to tighten them up, in the light of, in particular, an opinion of the Committee of European Securities Regulators (CESR).
During the debate, most of the MEPs voiced their satisfaction at an agreement which, although far from ideal, marks a stage in the ongoing reform of European legislation on the financial sector, particularly financial supervision. On the issue of securitisation, there was "a debate on the proportion which must be held in own funds", said Mr Karas. The Commissioner for the Internal Market, Charlie McCreevy, who was pleased with proceedings, stated that the Commission still had reservations on this issue. He congratulated the EP on having resisted attacks from the industry on the introduction of a provision which he feels is "essential" to reinforce the stability of the financial markets. "We will see whether we need to increase the requirements for the retention level" when this provision is reviewed at the end of this year, he added. He went on to warn the banks to be prepared in future to constitute more own funds, which is the only way out of the current crisis of confidence. "10%" of securitised assets held "would be far more justified", said Werner Langen (EPP-ED, Germany), supported by Udo Bullmann (PES, Germany). Concerned that the hasty adoption of the directive could bring about new problems, John Purvis (EPP-ED, UK) expressed his disagreement with the requirement for a minimum level of securitised assets held, which would "slow recovery on the credit markets", and with limiting a bank's exposure to the risks of just one consideration to a level of 25% of its own funds, which "will make things complicated". British Liberal Sharon Bowles is convinced of the importance of the securitisation market, which "in recent years consisted of 800 billion in securitised loans, which may have been mortgages, car loans, consumer loans and even loans to SMEs".
Deploring the absence of the Czech Presidency, Pervenche Berès (PES, France) criticised Mr McCreevy's attitude, opposing regulatory intervention negated by the financial crisis at the end of this legislative period. "Fortunately, we won't be working with you any more!", she said. Her Dutch counterpart Ieke van den Burg called for the creation of a portfolio dedicated solely to financial services in the next European Commission. Zsolt László Becsey (EPP-ED, Hungary) spoke in favour of the systematic creation of "colleges" for the cross-border financial institutions.

THE COMMENT TO THIS POST BELOW IS MORE 'ANALYTICAL' THAN THE EXPOSITION ABOVE
Fri, 2009-05-08 08:55 — John A Morrison
European Parliament debate on CAD3 The Future of Securitisation
“5% of something is better than 55% of nothing” McCreevy
http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/09/215&format=HTML&aged=0&language=EN&guiLanguage=en
This (above) is the speech of Charlie McCreevy of 6th May, to the European Parliament.
How many people do you really know who would understand the point of it?
I thought I would bring it to the attention of our many followers & put it on the record for my own purposes, since no-one else is reporting it. It’s McCreevy's speech to the European Parliament prior to their votes on his bill, at a first reading, legislating the budgets of CEBS etc (the 3L3), EFRAG (the accounting standards body) etc & effecting the change to CAD3 (Euro Basel II) to legislatively require first loss provision retention @ 5% in securitisation. This retention was initiated at 15% but “bargained out” by the industry and the Commission to 5%.
Note the parliament did not vote on his proposals on ratings agency reform at this session; this is the last meeting of the parliament before the elections in June.
Clearly Charlie believes that supervision is about reporting, it’s not a process, its not a pompous thing run by important people or huge bloated agencies of the European Executive, its about transparency to him (an interesting position). I hadn't seen it that way before; I don’ think Charlie has made his own philosophy on this so clear before. It reflects his professional background. Personally I think this is brilliant. After he leaves Brussels, would Charlie not be the optimal first chairman of NAMA in Dublin? Charlie got a hammering from some of the MEPs for bringing forward this legislation as “too little too late”; posturing of MEPs in my view; what Mr. McCreevy has achieved is simply ‘awesome’! As Charlie argued himself, this is a first step in a long process. McCreevy and his staff had pushed this through in a rapid expedited process which had begun on Monday night (I think I smell the cigar smoke!) and went on through Wednesday morning; ‘Trilog’ is the Euro-technical term, the agreement was reached one hour before the vote in the parliament...
There had been some extreme tension on the parliament floor over the scale of the legislatively required 1st loss provision retention in issued securitisation, with a French lobby speaking up the requirement to 20%; Beres Perveche MEP made it clear that she believes that the expedited process Charlie had used to get this legislation through this week was too fast for her. She was supported by a German MEPs arguing to lift the retention number to 10%.
But Perveche did make it clear that the European parliament will address in the session immediately after the elections enabling legislation to bring forward Europe'S institutional changes.