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Securitisation in Ireland

Securitisation in Ireland. Clive Jackson OECD Working Party on Financial Statistics, 2 November 2009. Securitisation in Ireland: Two themes. First theme: Securitisation carried out by Irish resident banks. Securitisation by Irish banks. First securitisation: IR£200 million in 1996

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Securitisation in Ireland

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  1. Securitisation in Ireland Clive Jackson OECD Working Party on Financial Statistics, 2 November 2009

  2. Securitisation in Ireland: Two themes

  3. First theme: Securitisation carried out by Irish resident banks

  4. Securitisation by Irish banks • First securitisation: IR£200 million in 1996 • Outstanding amount of securitised mortgages now c. €38 billion

  5. Statistical treatment of securitisation • Most commonly in Ireland, loans are purchased by a bankruptcy-remote vehicle created for this purpose (so-called SPV / SPE / FVC) • Loans are moved off balance sheets, giving a sharp fall in credit reported • Securitised residential mortgages must be added back in to correct for this when analysing volumes and growth rates:

  6. Recent developments • Securitisation activity accelerated despite freezing of market post-crisis • “Internal securitisations” used to create eligible assets for refinancing operations • Notes purchased by securitisation vehicles purchased by bank to use as collateral • Mortgages on balance sheets are replaced by debt securities holdings

  7. Issuance of Asset Covered Securities • It is possible for a bank to set up a “covered bond” bank • Enabled by 2001 legislation, first carried out in 2004 • Loans may be transferred to a designated “mortgage bank” under the 2001 legislation, which may then issue “Asset Covered Securities” • Issuance fell sharply in 2007, but rose in 2008 • Statistical treatment • The mortgage bank is a credit institution covered by statistical reporting requirements • Loans on its balance sheet are captured – no adjustments are necessary Issuance of mortgage-backed covered bonds in Ireland

  8. Second theme: Other securitisation vehicles resident in Ireland

  9. Wider population of securitisation vehicles • New ECB statistical regulation for Financial Vehicle Corporations passed Governing Council in December 2008 in order to: • contribute to analysis of monetary aggregates • harmonise treatment of securitised lending across the euro-area • provide information on alternatives to bank finance • examine wider issue of credit risk transfer • Ireland is one of the primary locations for FVCs in the euro-area • Structures enabled by Section 110 of the Taxes Consolidation Act 1997, as amended by Section 48 of the Finance Act 2003 • 2003 legislation allows “Section 110s” to register with the Revenue Commissioners • They may then utilise certain treatments to ensure tax neutrality (e.g. with respect to paying interest or income to CDO investors) • New Regulation requires a national register of resident FVCs • First time such an exercise has been done – 900 vehicles currently • FVC definition is wider than what is traditionally thought of as securitisation (i.e. vanilla securitisations of banks’ mortgage books covered in banking statistics) • Some issues around the margins in determining whether some vehicles are inside or outside the FVC definition

  10. FVC Regulation ECB/2008/30 • First collection of data from all resident FVCs with respect to Q4 2009 • Central Bank deadline T+19 days • Transmission to ECB T+28 days • Derogation on some securitised loans data on FVC balance sheets • where loans are originated & serviced by an MFI in the euro-area, customer/geographic/ maturity of loans will be supplied directly to the respective National Central Bank • This data will be exchanged between Central Banks through the ECB • Derogation for smaller vehicles < €180 million • Only quarterly total assets/liabilities collected for small FVCs • The derogation may be applied so long as total assets of all derogated FVCs does not exceed 5% of population assets • Subject to annual review

  11. What will be collected?

  12. Summary of key breakdowns

  13. What type of vehicles are in Ireland? • 900 vehicles are currently on register of FVCs, total assets c. €500bn • Compare to €38 billion securitised by Irish banks • Residential and Commercial MBS make up one third of vehicles • CDOs (including CLOs, CBOs) make up 40% Nature of securitisation (by number) Types of securitisation vehicles (by number) [Note: Data on this slide are preliminary estimates in advance of the first full collection of data in December.]

  14. Thank you Thank you

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