LCR and STS – Wird es ein Autounfall?

European automotive captives are “a vital part of the European car industry” say die Banken der Automobilwirtschaft, das Verband der Automobilindustrie and le Comité des Constructeurs Français d’Automobiles in their LCR ratio position paper issued on Wednesday. The captives are subsidiaries of the large European manufacturers.  They lend to buyers of new cars over a relatively short period, and then securitise the assets. There is a ready market for the paper because it pays down fairly quickly and is viewed by investors as a cash substitute. Banks are the most important investor group, and can count the securitised paper towards their LCR ratio… but if the LCR ratio is amended to include only STS securitisations as “Level 2B assets”, there will be a problem because deals done now may not count as STS  come January 2019. The three organisations say that banks have already stated that they will stop buying auto-ABS now because there is no grandfathering option, and (presumably) will wait until STS-compliant paper comes up. As noted in July in Finbrief, since the level 2 detail is not all finalised yet, issuers and investors cannot in many cases be confident that deals done in anticipation of it will meet the STS criteria. As we asked then, would a bank risk buying a deal between now and next year to count as Level 2B knowing that it might not qualify after 1st January 2019? During its passage through the EP, the Securitisation Regulation was amended specifically to cater for the requirements of the auto ABS industry, and one would expect their voices, added to those of the banking industry, to carry enough weight to get the existing LCR amendment rejected and replaced.