The growth of retail savings won’t be enough to fill the hole opened by the closure of the major government funding schemes, which first emerged through the collapse of the securitisation markets, said Paul Hunt, managing director of Phoebus Software.
The government has just a released a consultation paper, Financing a Private Sector Recovery, which Phoebus called flawed in the short-term.
“Since the collapse of the securitisation market and the apparent loss of investor confidence in mortgage backed assets, this wholesale funding option has evaporated. Indeed, the government of the time was quick to blame the structured finance market for causing the credit crisis in the first instance, leading to the subsequent economic downturn,” he said.
If retail funding could fill the gap, this could work, he said.
“But private equity firms, hedge funds and lenders relying on retail deposits simply don’t have the capacity or appetite to cover this shortfall. This leaves the government with few options but to do a u-turn on its position and sponsor, support and welcome back securitisation.”
Phoebus cites examples like the US Term Asset Backed Securities Loan Facility (TALF), a Federal Reserve programme that lent money to investors in asset-backed securities (ABS) as a way of stimulating demand for banks to originate business and other loans that could be packaged into ABS.
“A similar scheme in the United Kingdom would support lending in the UK,” he said.
“The 2009 Asset Backed Securities Guarantee Scheme provided Government guarantees on the safest tranches of securitisations in return for a fee. This was intended to be a temporary measure to restore and maintain financial stability and support the supply of credit.”
“One option would be to reopen The ABS Guarantee Scheme,” said Hunt, adding that a covered bond guarantee scheme to bolster the UK’s securitisation market would encourage both banks to lend more and investors to invest in a new asset class.
Hunt said: “It’s time the government opened its eyes and realised securitisation is a definitive part of the answer to the UK’s funding shortfall.”
“If the government is serious about significant economic recovery then a change of heart regarding this market is needed quickly.”
