Securitisation: Reguleringens påvirkning af aktiviteten

Kenny Michael Andersen

Student thesis: Master thesis

Abstract

Securitisation has been developed within the past three - four decades. In spite of the historical background, the regulative mechanisms of the product have not until recently been formed. In fact, the first global approaches through a regulation of securitisation were not seen until the late 1990’s. As the market for securitisation has existed since the American agencies issued the first asset-backed-securities during the 1970’s, the product has been acting on an unregulated platform for several years. Despite the fact that the Basel I recommendations of 1988 had some incentive effects on the parties within the securitisation business, the rules did not contain any specific regulation on securitisation. It was not until the introduction of Basel II, the securitisation market was regulated and these guidelines included a separate chapter on securitisation. In other words, significant higher attention was given to the product. This thesis primarily focuses on the rules included in Basel II and the effect of those on the securitisation activity. The overall purpose is to discuss to what extent the regulation of securitisation affects the activity. Further to a brief introduction to the financial instrument, an analysis of the development in the regulative position is provided. This analysis illustrates that the regulation before 2007 provided the agents on the securitisation market with incentives to apply assets with high credit risk in their securitisation activities. Moreover, the content of the rules caused an incentive to construct re-securitisations to obtain a more favorable risk valuation. The activity in the securitisation market is illustrated particularly by analysing the MBS- and CDO-markets. The movement was booming from the beginning of the 2000’s; the incentives in Basel II caused an even more immense rise in this activity. The explosion in securitisations of subprime loan was followed by a catastrophic meltdown in the same activity after 2007. The study shows that this crash was mainly led by imperfect information on the market, critical incentives of the originators and investors acting with bounded rationality. In the light of the meltdown, the regulators have modified the rules regarding securitisation. The thesis analysis discusses these modifications which primarily deal with stronger disclosure requirements and stronger incentives for originator to provide higher quality assets for the structures. However, it is concluded that these modifications are not sufficient to reach the main ambition of the changes, although the new rules are a step in the right direction. Consequently, suggestions for further modification of the regulation of securitisation are presented.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2012
Number of pages85