2018年-EBA欧洲银行管理局_EBA_Final_report_on_ESNs_94页_1mb

Summary of EBA Report on European Secured Notes (ESNs)

Core Content

The European Banking Authority (EBA) conducted an assessment on the European Secured Notes (ESNs) in response to a Call for Advice (CfA) issued by the European Commission in October 2017. The report evaluates the business case for ESNs, their impact on asset encumbrance, asset performance and pool eligibility criteria, structure and features, and regulatory treatment. It also includes recommendations for the European Commission on the legislative framework for ESNs.

Main Viewpoints

1. Business Case for ESNs

• Purpose: To assess whether a dual-recourse instrument similar to covered bonds could serve as a useful funding source for SMEs and infrastructure projects.
• SME ESNs: Could provide an additional funding source, especially for small institutions with limited access to securitisation markets or difficulty issuing unsecured long-term debt.
• Infrastructure ESNs: Present more challenges due to higher regulatory capital consumption from their long-term maturity and large exposure amounts.
• Investor Perspective: The risk-return profile and regulatory treatment (e.g., under LCR and ECB collateral frameworks) are key drivers for investor interest.
• Market Potential: Estimated potential ESN market size for SMEs could range between EUR 310 billion and EUR 930 billion, while for infrastructure it could be between EUR 80 billion and EUR 170 billion.

2. Impact on Asset Encumbrance

• Asset Encumbrance: ESNs would likely lead to an increase in asset encumbrance, but the overall increase is assessed to be moderate.
• Over-Collateralisation: Higher than that of CRR-compliant covered bonds.
• Implications for Credit Institutions: May affect the availability of liquidity and capital requirements, but the EBA suggests that the impact could be managed with appropriate design.

3. Asset Performance and Pool Eligibility Criteria

• SME ESNs: SME loans are riskier than real estate or other corporate exposures, with more heterogeneous performance and pro-cyclical characteristics.
• Eligibility Criteria: The EBA recommends strict eligibility for SME ESNs, including:
  • Selected SME exposures
  • Sufficient granularity
  • Concentration limits
  • Quality standards
  • Minimum over-collateralisation of 30%
• Infrastructure ESNs: Project finance exposures tend to improve in credit quality over time, especially once the project moves into the operational phase.
• Eligibility: Infrastructure ESNs should be restricted to project finance, with exclusion of construction phase exposures. Granularity and concentration limits may not be appropriate for this class.

4. Applicable Structure and Features

• SME ESNs: Can be structured as dual-recourse instruments, and the EBA suggests that most of its 2016 covered bond best practices are applicable, with some adjustments for SME-specific features:
  • Composition of cover pools
  • Jurisdictional treatment of underlying assets
  • Coverage principles and over-collateralisation
  • Liquidity buffer
  • Scope of disclosure
• Infrastructure ESNs: A dual-recourse structure is not appropriate due to the complexity and bespoke nature of infrastructure projects. Instead, the EBA proposes a standardised infrastructure bond as a more suitable instrument.
• Key Features of Infrastructure Bonds:
  • Secured by infrastructure loans transferred to an SPE (Special Purpose Entity)
  • Subject to public supervision
  • Could offer capital relief through risk transfer
  • May be classified as specialised lending or non-STS securitisation under the CRR, depending on the framework.

5. Regulatory Treatment

• SME ESNs:
  • UCITS Treatment: Recommended as yes for retail investment and lower investment limits.
  • Bail-in Exemption: Recommended as yes.
  • EMIR Treatment: Exemption from collateral posting is recommended.
  • HQLA Eligibility under LCR: Not yet assessed.
  • Solvency II Treatment: Not yet assessed.
• Infrastructure Bonds:
  • The EBA suggests that differentiated regulatory requirements could be considered, especially in terms of capital treatment and risk mitigation.
  • The assignment under CRR exposure classes needs further clarification to determine appropriate treatment.
  • The regulatory framework should be aligned with the new CRR framework for project finance exposures.

Key Information

• Call for Advice (CfA): Issued by the European Commission in October 2017, aimed at assessing the business case and regulatory treatment for ESNs.
• ESN Definition: Dual-recourse financial instruments using SME or infrastructure bank loans as collateral, either directly on the issuer's balance sheet or through an external entity.
• Challenges for Infrastructure ESNs: Higher capital consumption, complexity, and heterogeneity of underlying assets make dual-recourse structures less suitable.
• Recommendations:
  • A pan-European framework for ESNs could be established.
  • Strict eligibility criteria for SME ESNs, including over-collateralisation of at least 30%.
  • A standardised infrastructure bond could be considered as a new funding instrument.
  • Regulatory harmonisation is needed to ensure consistency and avoid market confusion.

Conclusion

The EBA report concludes with five main policy recommendations for the European Commission, focusing on:

1. Establishing a pan-European framework for ESNs.
2. Ensuring appropriate capital treatment for SME ESNs.
3. Defining clear eligibility criteria for SME and infrastructure assets.
4. Considering differentiated regulatory treatment for infrastructure bonds.
5. Further work is needed to specify features and regulatory classification of ESNs.

The report underscores the potential of ESNs to enhance funding for SMEs and infrastructure projects, while also highlighting the need for careful design and regulatory alignment to ensure financial stability and market confidence.