Written answers

Thursday, 6 November 2008

5:00 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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Question 45: To ask the Minister for Finance his position on draft EU proposals that originating banks be required to retain a portion of assets which they securitise on their books; and if he will make a statement on the matter. [38845/08]

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy is referring to the proposal by the Commission in the draft Capital Requirements Directive amending Directive, which is currently going through the co-decision legislative process, for improving the risk management for securitised products and addressing significant weaknesses in the so-called "originate-to-distribute" model which has played a central role in propagating the sub-prime crisis in the USA to the financial sector internationally.

Basically, it is proposed that firms that repackage loans will be required to retain some risk exposure to these securities, while firms that invest in such securities will be allowed to make their decisions only after conducting comprehensive due diligence.

For instance, banks issuing securitisations would be required to retain not less than 5% of the net economic interest in an issue. Similarly, banks would be prohibited from investing in securitisations unless the originator retained at least 5% of the risk.

Securitisation has been a useful means of meeting the funding needs of the banking sector. Accordingly, my Department is in consultation with industry representatives regarding the possible implications of the Commission's proposal for securitisation activities in Ireland and these contacts are ongoing. Moreover, compromise proposals on the draft Directive, including in relation to the securitisation elements, are currently under consideration in the Council Working Group. In the circumstances, my Department has not yet taken a definitive stance in regard to the so-called 5% retention proposal but it will be a priority to ensure that the agreed approach supports the maintenance of financial stability and the appropriate pricing of risk.

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