We welcome the Commission’s proposed amendment to the LCR Delegated Act increasing the eligibility of senior tranches of STS traditional securitisations with credit quality CQS5 to CQS7as a first step in shifting away from the current treatment, which results overly conservative and deeply affects the market liquidity of those securities.
However, we believe that the amendment to the LCR DA should definitely strive for a greater degree of ambition, which could support market dynamics in a deeper manner and provide the long expected game changing incentives. This could be done by working on two key measures:
- Senior tranches of STS securitisation should be promoted from level 2B to Level 1 or level 2A, for tranches rated AA- or higher to truly foster their uptake.
- For non-STS transactions, eligible senior securitisations should be considered at level 2B, when rated AA- or higher, with appropriate haircuts.
Such further adjustments would support both the primary and the secondary securitisation market in terms of pricing and market liquidity, broadening the investor base. Moreover, even non-bank investors are valuing LCR eligibility for their own investments (market signalling), hence it will help develop the market on non-banks, creating a global positive and active market ecosystem, enhancing all liquidity profiles.