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ESF Response to CEBS Consultation Paper on Liquidity Risk Management

Core Content

The European Securitisation Forum (ESF), an affiliate of the Securities Industry and Financial Markets Association (SIFMA), has provided detailed feedback on the CEBS Consultation Paper titled Technical Advice to the European Commission on Liquidity Risk Management. The response focuses on the need for a globally consistent and flexible liquidity risk management framework, while also offering specific comments on the proposed measures and their implications for the securitisation market.

Main Views

The ESF emphasizes the following main viewpoints:

• Global Liquidity Risk: The recent market turmoil has shown that liquidity risk is not confined to individual institutions but has global implications. Therefore, a unified regulatory approach is essential.
• Regulatory Convergence: The ESF supports the draft Technical Advice but suggests that it should align more closely with the Basel Committee's Principles for Sound Liquidity Risk Management and Supervision to ensure consistency across jurisdictions.
• Flexibility and Proportionality: A regulatory framework should allow for proportionate and flexible approaches, enabling different types of institutions to manage liquidity risk in a manner suitable to their size, complexity, and nature.
• Industry Cooperation: The ESF advocates for closer collaboration between the financial industry and regulators, especially during periods of liquidity stress.

Key Information

General Comments

• The ESF recommends that the implementation of the Technical Advice be aligned with national initiatives already in place to avoid regulatory overload.
• The ESF suggests that the Technical Advice be integrated into Level 3 guidance or the Capital Requirements Directive in a way that facilitates smooth interaction with Member State efforts.
• There is a call for more open access to investor reports on CDO transactions and for the publication of a directory of CDO websites to enhance transparency and awareness.

Securitisation-Specific Comments

• Lesson 3: The ESF believes the statement that the originate-to-distribute (OTD) model has increased banks' dependence on capital markets is too broad. It should be nuanced to reflect that not all credit institutions rely heavily on wholesale funding.
• Lesson 4: The ESF supports the idea that complex products may reduce transparency, but argues that this is not an inherent characteristic. It highlights that proper valuation and booking practices can mitigate this issue.
• Lesson 5: The ESF agrees that securitisation can pose liquidity risks in times of stress, especially when new issuances are difficult. It recommends that the point on diversification of funding sources be included in the context of Recommendation 17.
• Paragraph 50: The ESF notes that while the OTD model may present challenges, most OTD products are not opaque. It supports the idea that transparency can be ensured through replicable cash flows and availability of benchmark securities.
• Recommendation 17: The ESF supports the need for diversification of funding sources but stresses that it should be interpreted based on the institution's specific circumstances.
• Recommendation 18: The ESF agrees that institutions should disclose relevant quantitative and qualitative information on liquidity risk management. It also highlights ongoing transparency initiatives aimed at improving investor access and understanding.
• Paragraph 207: The ESF supports the idea of disclosing information on implicit support, as it can significantly impact liquidity positions during stress.
• Recommendation 28: While the ESF supports the collection of data for supervisors, it advises that a cost-benefit analysis should be conducted before introducing new reporting requirements to avoid discouraging transactions. It also supports the establishment of a European system for data collection to prevent duplication.

Conclusion

The ESF sees the CEBS Consultation Paper as a significant step toward establishing a common regulatory and supervisory framework for liquidity risk. However, it emphasizes the need for nuance, flexibility, and alignment with global standards. The forum is committed to enhancing transparency and data availability in the securitisation market and encourages continued dialogue between industry and regulators.