MACROECONOMIC ASPECTS
Luckily the horse doesn't drink because there is NO water
The horse does NOT drink and therefore attention has been diverted from the problem of the financial resources needed to finance the economy. The banks, returning from a considerable effort to adjust their capital to the current size of their assets (even reducing the assets themselves) declare themselves ready to finance companies if requested.
If the horse starts drinking again – as it seemed last winter – the necessary financial resources would become huge.
It has been estimated that just to bring the amount of funding back to pre-crisis levels, around 2 trillion euro would be needed. If we then think that the economy will continue to grow, another 5 will be needed in 1.500 years, to which approximately 600 billion will have to be added which the banks will have to keep sterilized to comply with the new liquidity ratios.
This is a total of over 4000 billion that the European banking system will not be able to provide because it is now blocked by a lack of capital (the capital increases that have just been carried out are only sufficient to re-establish a correct relationship with existing loans and the generation of profits it is certainly not such as to increase capital internally) to the necessary extent.
It is therefore natural that the heads of the European economy, the monetary authorities and the world of academia believe they have to find the necessary resources (we hope in the near future) outside the banking system and therefore on the capital market, favoring them in every way direct access by enterprises.
Hence the flourishing of projects and facilities to encourage: the issue of minibonds, the listing of equity, bond or hybrid securities and, more recently, facilities for the securitization processes of loans/loans to generate new securities from to offer the market techniques which in the United States have made it possible to finance the economy for an amount higher than that provided by the banks.
ASPECTS OF FINANCIAL TECHNOLOGY
When will the recovery come, will we be able to finance it?
The large-scale use of the securitization system (and thus of the issuance of huge quantities of ABS) has so far met with serious perplexity among operators and regulators because it brings with it the SHAME (Stigma) of the recent financial crisis. Operators no longer trust investing in ABS because the Rating Agencies to which they actually delegated risk analysis during the crisis proved to be unreliable, regulators because they are convinced that structuring techniques, instead of diluting risk, make it opaque, invaluable and uncontrollable and therefore unmanageable in terms of stability.
In other words, for 4/5 years there was the risk of throwing the baby out with the bathwater. In the meantime, however, there has been a reawakening of curiosity (in 2009 the FSB dictated a line of research on Shadow banking; in 2010 the NY Fed published the first document containing the technical, institutional and quantitative description of Shadow Banking; IOSCO published guidelines on ABS transparency in 2012, IstEin – Istituto Einaudi organized a conference in Rome to highlight the extraordinary quantitative results of Shadow Banking and the Fed's interventions to prevent its collapse; in 2013, a group of major European banks (PCS) suggested identifying good ABS (called QUALIFYING) to be placed on the markets; more recently (December 2013) the more unscrupulous BoE published an important document on the subject and last May the BoE and the ECB put in public discussion an excellent, detailed and precise joint document.
Lastly, on 4 September, President Draghi formally announced that, starting next October, the ECB will launch a program for the purchase of "good" ABS (which he defines as "simple and transparent").
The decision may have historical significance: the ECB not only legitimizes and therefore "clears" an instrument, but does so by investing directly in it and stating that it is a useful means not only for financing businesses but above all for intervening on bank balance sheets and monetary policy transmission channels.
This is great news: perhaps the separation, dating back to the crisis of the 30s, of the financial market into two large non-communicating segments (credit and securities), supervised in different ways and by different authorities, one noble and virtuous, the other adventurous and unreliable, tends to close and barriers to fall.
But the resource retrieval problem still remains open:
– Regulation penalizes securitization and practically prevents re-securitization.
– For many banks, "assigning" a credit is seen as "assigning" a customer and a securitization transaction is considered costly and demanding in organizational terms.
– For institutional investors, ABSs contain risks that are difficult to understand and therefore NOT worth analyzing as part of a normal alternative investment selection process.
– For the saver protection authorities, structured securities are the manifestation of a perverse finance, oriented only to plundering savers.
– For public opinion, even (or above all) in its more educated components, structured finance is the manifestation of evil itself.
It is therefore clear that the institutional intervention of the ECB, illustrated by the by now charismatic figure of its governor, should be greeted as a turning point and as the possible beginning of a new regulatory process that wants to take into account the risks inherent in financial products (and on this path began as evidenced by the institution's acceptance of the existence of "simple and transparent" or "qualigying" and therefore "good") ABS but also of the functional characteristics of the bond markets which are guided by operators interested in large predictable flows of securities (see government bonds) and do not undertake to deal with issues of small amount, unknown (or little known) issuer of impossible predictability as regards the originality of the characteristics and impossible to predict as regards continuity and repetition of emissions.
Nothing has been done on this path yet but, if the liquidity problem is not resolved, it is useless to think of securitizations and the market as alternatives to bank credit. The macroeconomic problem of financing the economic recovery will in this case have to be tackled in a third way (the document of the Einaudi Institute – IstEin proposes to offer the first proposal, it will be published in issue 9 of “Bancaria”).
