rec_10

(10) In relation to asset-backed securities (‘ABS’), the EBA had recommended, consistent with its own empirical findings and with the BCBS standard, that only RMBSs of credit quality step 1 be recognised as level 2B assets, subject to a 25 % haircut. It is also appropriate to deviate from this recommendation and expand level 2B eligibility to certain ABSs backed by other assets. A broader range of eligible subcategories of assets would increase diversification within the liquidity buffer and facilitate the financing of the real economy. Furthermore, as available market data points to a low correlation between ABSs and other liquid assets such as government bonds, the bank-sovereign nexus would be weakened and fragmentation in the internal market would be mitigated. In addition, there is evidence that investors tend to hoard high quality ABSs with short weighted-average life and high prepayments during periods of financial instability, as these convert into cash quickly and can be relied upon as a safe source of liquidity. This is particularly the case of ABSs backed by loans and leases for the financing of motor vehicles (‘auto loan ABSs’), which exhibited price volatility and average spreads comparable to RMBSs during the 2007-2012 period. Certain sections of consumer credit ABSs, such as credit cards, also showed comparable good levels of liquidity. Lastly, allowing ABSs backed by real economy assets, such as those mentioned already and loans to SMEs, could contribute to economic growth as it would send a positive signal to investors in relation to these assets. Appropriate rules should therefore recognise ABSs backed not just by residential mortgage loans, but also by auto loans, consumer credit and SME loans as level 2B assets. However to preserve the integrity and functionality of the liquidity buffer, their eligibility should be subject to certain high quality requirements consistent with the criteria to be applied to simple, transparent and standardised securitisations in other financial sectorial legislation. For RMBSs in particular, high quality requirements should include complying with certain ratios on loan-to-value or loan-to-income, but those ratios should not apply to RMBS issued before the starting date of application of the liquidity coverage requirement. To account for the less high liquidity observed in consumer credit and SME loan ABSs relative to RMBSs and auto loan ABSs, the former should be subject to a higher haircut (35 %). All ABSs should be subject, like other level 2B assets, to the overall 15 % cap of the liquidity buffer and to the diversification requirement.

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Source: EUR-Lex (Cellar) · retrieved 2026-11-06 · Text as adopted (Official Journal); later amendments are not incorporated in this text.