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Basel III framework to have “greater significance” than MMR

by: Mortgage Solutions
  • 08/05/2012
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Basel III framework to have “greater significance” than MMR
Changes to the Basel regime will have as much impact on the mortgage industry as the Mortgage Market Review, an industry expert has warned.

Basel III will require banks and building societies to hold more capital and liquidity from January 2013 through to 2019.

Tony Ward, chief executive of Home Funding Limited said that deleveraging – when banks fund more of their activities out of their own resources rather than borrowing from others – is set to bring more changes to the mortgage market.

Ward told Mortgage Finance Gazette: “There are three main ways a bank or building society can achieve this deleveraging: issue more equity capital; retain more profits as part of Tier 1 capital reserves; or shrink loan books through deleveraging programmes which includes lending less.

“Other mechanisms such as freeing up capital through risk transfers will also have their place.”

Ward said that deleveraging could lead to an increase in banks actively encouraging borrowers to move their mortgage accounts away through one means or another.

“We will all see an increase in mortgage and other asset sales if I am correct.”

He added that deleveraging has to be done via a number of mechanisms rather than just re-broking loans, including banks managing their deleveraging programmes themselves.

Ward said that in order for lenders to manage this effectively, they will need a wide range of key skills including cross-selling techniques, joint ventures with other lenders and corporate and structured finance experience.

“This is not something that every lender will feel it has the ability to deliver so we can expect a growth in specialist asset management businesses which can manage this on an outsource basis in order to meet the banks’ overall strategic objectives and financial needs.”

Ward added that weak funding levels means that there is a need for foreign investors “which will represent a real influx of new liquidity to the UK.”

He explained how the return of some mortgage backed securities and covered bond markets are failing to provide the liquidity the mortgage market is in need of.

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