The lesson learnt
from the crisis is:
reduce risk 9
BANKING SPECIAL
Harry de Roo:
Harry de Roo
One financial term that many came to know, and some
distrust, following the financial crisis was 'securitisation',
which is the creation of asset-backed securities. Politicians
and regulators have been vocal in their criticism of the
use of opaque securitised products, such as collateralised
debt obligations (CDOs), saying they masked the risk and
uncertainty about the value of the underlying assets, and
played a major role in the sub-prime crisis. One of the aims
of Basel III is to make securitised products more transparent
and comparable. According to Marco Roddenhof, Global Head
of Debt Capital Markets at Rabobank, although many thought
securitisation would remain unpopular, it is once again starting
to contribute to the broadening of banks and companies
funding base, although in a more transparent form, and is a
necessary part of their need to free up capital. Roddenhof:
"Although banks have been badly hurt by the crisis, they
still have to re-establish their capital base and they still need
to provide financing to customers. What we are starting to
see, and will witness more in the future, is an off-loading of
consumer loan portfolios and mortgages via securitisation.
Many within the industry thought that the securitisation
market was dead, but I can assure you that it is alive and well.
What you see at the moment, for example, is a great deal of
issuance of residential mortgage-backed securities (RMBS). In
fact, Rabobank is involved in almost every RMBS in the Dutch
market. We are also seeing the first signs of revival of the
commercial real estate securitisation market, and even credit
card and car loans are slowly coming back into the market. But
it's very important to highlight that something fundamental
has changed. The regulations for securitisation are far more
stringent than they were, so we're seeing a real change to
the way products are structured. The opaque and loose
structures that characterised the classic CDOs have gone, and
are being replaced by products that are more vanilla-flavoured,
transparent and focused on risk reduction."
Indeed, it's the desire to mitigate risk within the sector that's
driving regulators on both sides of the Atlantic. Harry de Roo,
Chief Financial and Risk Officer of Rabobank International, is
satisfied with the steps Rabobank's already taken to prepare
for the upcoming changes, and expects to see more oversight
internally. "I expect that we'll appoint two or three committees
within the bank that'll concentrate explicïtly on the liquidity
issue, although we're quite fortunate that a number of
changes that are relevant today were already implemented in
2004 or 2005, and so we basically have a liquidity framework
in place. However, after every crisis you learn another lesson
and realise there is always room for adjustments and
improvements, and from this crisis the lesson learnt is: reduce
risk." Ensuring banks retain a liquidity buffer and are able to
withstand a month-long crisis will boost confidence within
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