Securitisation in Ireland
Clive Jackson
OECD Working Party on Financial Statistics, 2 November 2009
Securitisation in Ireland: Two themes
•Growth in ‘originate and distribute’ model ...
Irish banks’
securitisation activities
•... replaced by ‘internal’ securitisations phenomenon
•Monthly data collected since 1996
•Important for understanding credit developments
Wider population of
securitisation vehicles:
“Financial Vehicle
Corporations”
•Common location for vehicles of euro-area banks
•Also varied activities by other types of vehicles
•Limited data collected on this sector
•But statistical requirements from Q4 2009
First theme:
Securitisation carried out by Irish resident banks
Securitisation by Irish banks
•
•
First securitisation: IR£200 million in 1996
Outstanding amount of securitised mortgages now c. €38 billion
€ billion
160
Securitised mortgages
140
120
100
80
60
40
20
0
Mortgages, excluding securitised volumes
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:
40%
35%
30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
Annual change in residential mortgage lending, adjusted for securitisations
Annual change in residential mortgage lending, unadjusted for securitisations
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
Post-crisis growth:
internal securisations
€ billion
45
30%
Securitised mortgages (LHS scale)
40
Securitised mortgages as percentage of total mortgages (RHS scale)
25%
35
30
25
First period of growth
Second period of growth:
originate and distribute
20%
15%
20
15
10%
10
5%
5
0
0%
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
€ billion
Issuance of mortgage-backed covered bonds in Ireland
25
Outstanding
20
New issuance
15
10
5
0
2004
2005
Source: European Covered Bond Council. 2008 data are provisional.
2006
2007
2008
Second theme:
Other securitisation vehicles resident in Ireland
Wider population of securitisation vehicles
•
New ECB statistical regulation for Financial Vehicle Corporations
passed Governing Council in December 2008 in order to:
–
–
–
–
•
Ireland is one of the primary locations for FVCs in the euro-area
–
–
–
•
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
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
FVC Regulation ECB/2008/30
•
First collection of data from all resident FVCs with respect to Q4 2009
–
–
•
Derogation on some securitised loans data on FVC balance sheets
–
–
•
Central Bank deadline T+19 days
Transmission to ECB T+28 days
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
What will be collected?
Assets
Liabilities
• Deposits & loan claims
• Loans & deposits received
• Securitised loans
• Debt securities issued
• Other securitised assets
(e.g. trade or tax
receivables)
• Capital & reserves
• Debt securities held (ISINby-ISIN data)
• Remaining liabilities
• Shares & other equity
• Financial derivatives
• Fixed assets
• Remaining assets
• Financial derivatives
Flows
• Financial transactions in
assets and liabilities
categories
• Write-downs & write-offs
of securitised loans
Summary of key breakdowns
Geographic
• Domestic, Other Monetary
Union Member State and
Rest of World for securitised
loans from euro-area banks
and debt securities held
• Unallocated for most other
asset and liability categories
• No geographic data on
holders of issued securities
Sector
• MFI/Non-MFI on deposits &
loan claims and debt
securities held.
• Securitised loans from euroarea banks broken down by
customer: government;
OFI; insurance & pension
fund; household; nonfinancial corporations.
• To net out multi-FVC
securitisation transactions,
‘of which FVC’ positions are
requested for some items.
• Unallocated for most asset
and liability categories
Maturity
• Of securitised loans from
banks to NFCs
• Of debt securities held
• Of debt securities issued
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)
Other / Not
yet specified
33%
Types of securitisation vehicles (by number)
True-sale
47%
Synthetic
20%
Source: Central Bank's list of Irish resident FVCs.
[Note: Data on this slide are preliminary estimates in advance of the first full collection of data in December.]
Thank
Thank you
you