Monday, June 18, 2012

Dutch banks boycott ECB's attempt to boost ABS transparency

According to a Bloomberg report, Dutch banks have decided not to use the ECB's endorsed ABS data warehouse and rather have chosen to set up their own ABS data warehouse.

Like the ECB's endorsed ABS data warehouse, the Dutch ABS data warehouse is going to have to address the issue of both what is disclosed and when is it disclosed.

If the Dutch ABS data warehouse is going to be of any use to investors, it is going to have to provide information on an observable event basis.  Under observable event based reporting, every time there is an activity (payment, delinquency, default, modification,...) involving the underlying collateral it is reported before the beginning of the next business day.

Without observable event based reporting, investors do not have current information on the performance of the underlying collateral.  Without current information, investors do not know what they own and are every bit as likely to lose money as they were in the run up to the financial crisis.

As a result, without current information, there simply will not be much investor demand for ABS/RMBS as investors lost enough money blindly betting on structured finance securities at the beginning of the financial crisis.

Dutch lenders are boycotting a European Central Bank project to improve transparency in the 1.9 trillion-euro ($2.4 trillion) asset-backed bond market
Robin Fransman, director of the Holland Financial Centre lobby group in Amsterdam, said a commercial company shouldn’t have been chosen to run the initiative. Dutch banks are the euro region’s biggest sellers of asset-backed securities, according to data compiled by JPMorgan Chase & Co. 
The European DataWarehouse, tasked by the ECB to collect details of underlying loans in ABS used as collateral for central bank funding, started selling shares in January to finance the project. The Dutch are in a stronger position than lenders in other euro-region countries because they’re less reliant on collateralized loans from the ECB. 
“We don’t understand why a commercial company has been set up for this purpose,” Fransman said. “The Dutch sector prefers a non-profit organization or an industry-run foundation to run the project.”... 
Banks will from this year start to provide the ECB with details of loans backing ABS. The Frankfurt-based central bank is seeking to improve the quality of the assets it takes on as loan security while improving confidence among investors. 
The European DataWarehouse, which is advised by privately held Link Financial Ltd. in London, will charge a fee to collect the loan-level data on the ECB’s behalf and make it available to other clients, a person familiar with the matter said in March.
Moving the European DataWarehouse onto the business model I wrote up in a column in Total Securitization, my response to the ECB's public consultation and on this blog.

The only question is will this European DataWarehouse offer data on an observable event basis or on the previously disclosed quarterly basis.  If on an observable event basis, the European DataWarehouse will in fact be trying to implement my business model.
Dutch banks instead will disclose the information requested by the ECB in a central depository website “accessible to all” set up by the Holland Financial Centre starting Sept. 1, according to Fransman....
I look forward to hearing from Mr. Fransman and helping the Dutch to offer observable event based reporting under my firm's patented information technology.
Holland Financial Centre’s participants range from banks to insurers and law firms, as well as supervisors including the Dutch securities regulator AFM and the Dutch central bank.

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