Thus, CRD II views information on individual underlying exposures (i.e. loan-level data) as necessary for investors to be able to make reasoned investment decisions. However, I want also to make clear that, along with policy initiatives, the structured finance industry has an essential role in restarting the European securitization markets and setting them on a sounder footing. The industry cannot realistically expect that the return of investors’ confidence will be just a question of time and implementing regulatory action. Likewise, certainly confidence will not be restored by introducing minor changes to the instruments and the functioning of the markets. On the contrary, confidence in securitization will return among private as well as public stakeholders only if market participants and their associations are able to materially enhance market standards and practices. Let me stress also that the industry cannot expect public authorities to accept merely cosmetic changes to the instruments and the markets. This, for example, applies to the Eurosystem’s collateral framework. In a context in which outstanding ABS represent almost 25% of the total collateral deposited by counterparties with the Eurosystem, it is imperative for the Eurosystem to be prepared to perform a proper assessment of risks whenever needed. In this context, loan-level information will enable ratings agencies to produce meaningful surveillance reports, which could in turn help the Eurosystem to diligently assess the risks implied by the collateral accepted in our refinancing operations. Industry-led initiatives aimed at revitalising the European securitisation market are inspired by high level principles, which typically meet immediate consensus.

These buffers would help protect the firm against having to liquidate assets under duress, and would therefore help prevent the probability distribution from sliding left toward the zero line in Figure 2. But there is a cost to the firm from holding greater liquidity buffers in terms of lower returns on capital. So, requiring greater liquidity buffers would also tend to drive up intermediation costs. And, just as in the case of higher capital requirements, banks could respond by taking greater risks. Third, regulators could implement changes that would reduce the degree of dispersion in the potential value of a firm, pushing the right tail of the distribution in Figure 2 to the left. For example, we could require greater transparency about the composition and quality of the firm’s assets and liabilities. Or, regulators could increase transparency by forcing greater disclosure of the sale price of assets and/or by pushing for greater homogeneity and price  6  This problem has been largely addressed in the banking sector by deposit insurance and by providing access to lender of last resort facilities. In addition, supervisory and reporting requirements address transparency issues. 6  BIS Review 143/2009  discovery for products such as OTC derivatives. We could improve the quality of regulation and supervision, which would increase confidence in regulatory measures of capital and financial firms’ soundness. Fourth, the central bank could provide a liquidity backstop to solvent firms.