Push for greater mortgage securitisation

In Australia, the Basel III liquidity standards – as implemented by APRA – do not allow RMBSs to be eligible for HQLA Level 2; in offshore jurisdictions, however, they are.

“This encourages ADIs to hold RMBS in order to satisfy their Basel III liquidity requirements and is consistent with the fact that such RMBS is repo eligible for cash liquidity at the central banks,” the ASF said in its Financial Services Inquiry submission.

The ASF said RMBSs are an essential funding source for lenders and that securitisation reduces Australia’s reliance on the big four lenders to fund the economy

“It allows non-ADI mortgage providers who do not have access to retail deposits to participate in market segments such as the mortgage market,” the Forum said.

Securitisation capital markets financed around 5 per cent of Australian residential mortgages in 1997, growing to almost 25 per cent by mid-2007, according to the ASF.

However, the GFC, particularly in North America and the UK, has tarnished the image of RMBSs globally.

“Australian securitisation markets were severely impacted by dislocations in offshore markets, despite not bearing any of the hallmarks of North Atlantic markets’ excess and misuse,” the ASF said.

Yellow Brick Road suggests the Australian government invest the proceeds of the banking levy into a fund that invests in the securitisation of home loans through the Australian Office of Financial Management, providing smaller and non-bank lenders with the ability to compete with the majors.