In response to the Government’s consultation paper, Financing a Private Sector Recovery, Phoebus Software managing director Paul Hunt said: “The Government believes it is crucial that banks accept they will have to rely less on short-term wholesale funding.
"Instead, retail deposits will continue to grow in importance, while high-quality longer-term wholesale funding, in the form of securitisation, which the banks relied on before the crisis, is likely to be less easily available.
"This is fundamentally flawed in the short term.
"There will be a £390 billion funding shortfall in the UK banking market next year as they are hit by a combination of maturing bonds and the impact of the closure of major Government-guaranteed financing schemes.
"Previously, this gap could have been filled by funds generated from the securitisation market.
"But since the collapse of the securitisation market and the apparent loss of investor confidence in mortgage backed assets this wholesale funding option has evaporated. Indeed, the government of the time was quick to blame the structured finance market for causing the credit crisis in the first instance, leading to the subsequent economic downturn.
"That would be fine if retail deposit backed lending could fill the gap.
"But private equity firms, hedge funds and lenders relying on retail deposits simply don’t have the capacity or appetite to cover this shortfall.
"This leaves the government with few options but to do a u-turn on its position and sponsor, support and welcome back securitisation."
Other countries have intervened to encourage their securitisation markets.
The US Term Asset Backed Securities Loan Facility (TALF) was a Federal Reserve programme that lent money to investors in asset-backed securities (ABS) as a way of stimulating demand for banks to originate business and other loans that could be packaged into ABS. And Hunt says a similar scheme in the United Kingdom would support lending in the UK.
He added: "In the UK, the 2009 Asset Backed Securities Guarantee Scheme provided Government guarantees on the safest tranches of securitisations in return for a fee.
"This was designed as a temporary measure to restore and maintain financial stability and support the supply of credit.
"In fact, during the period the scheme was open, the big, blue chip issuers were able to raise funds from a number of securitisations without the need for Government support and the scheme was never utilised. One option would be to reopen The ABS Guarantee Scheme."
Phoebus would also welcome a covered bond guarantee scheme to bolster the UK’s securitisation market.
Hunt said: "This would offer a Government guarantee on the timely payment of eligible covered bonds backed by pools of new loans, with the aim of encouraging both banks to lend more and investors to invest in a new asset class. As with the ABS Guarantee Scheme, issuers would also be required to pay for the Government guarantee in accordance with EU state aids rules, which is likely to limit its appeal."
And he added: “It’s time the government opened its eyes and realised securitisation is a definitive part of the answer to the UK’s funding shortfall.
"No one involved in the securitisation market before its collapse wants a repeat of the last two years.
"No UK RMBS deal has failed, indeed there remains investor demand for good assets.
"However, the underlying mechanics of securitisation need review and you can expect a very different approach going forward and one where standardisation and improved transparency will reduce the risks further.
"If the government is serious about significant economic recovery then a change of heart regarding this market is needed quickly.”
