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BoE official says securitisation not a panacea for EU

Reuters - UK Focus

(Adds detail)

LONDON, May 22 (Reuters) - European Union efforts to revive the market for securitisation after it was tarnished in the financial crisis won't do much to help smaller companies access funding for growth, a senior Bank of England (BoE (Shenzhen: 000725.SZ - news) ) official said on Friday.

The BoE and the European Central Bank have spearheaded EU efforts to kickstart securitisation, or the creation of debt based on pooled home, auto, corporate or card loans, as a way for companies to raise funds as banks rein in lending.

"We should not oversell what this market can do for SMEs (small and medium-sized enterprises)," David Rule, executive director of prudential policy at the BoE told a conference.

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"I suspect it can't do much but that does not mean it's not a good thing to be doing," Rule added.

Boosting securitisation, or asset-backed securities, is seen by Brussels as a top priority in its plans for a Capital Markets Union to improve the ability of markets to fund investments.

Speakers (Milan: BEC.MI - news) said ultra-cheap funds from the European Central Bank are dampening the recovery of securitisation as a source of money.

Rule would be keen to see higher capital charges on a rival asset, covered bonds, but he was not sure how realistic a prospect this was.

Securitised debt based on poor-quality U.S. home loans became untradable in 2007, sowing the seeds for a global markets meltdown and undermining the sector, even though few of the assets turned toxic in Europe.

Rule said the tone towards the sector had improved as policymakers want to encourage market-based finance.

The EU is likely to go it alone and cut capital charges on securitised debt at banks and insurers from agreed global levels to encourage the market, a step EU financial services chief Jonathan Hill alluded to earlier in the conference.

Rule said there was a "petty good consensus" on the way forward in Europe. (Reporting by Huw Jones; Editing by Mark Potter and David Holmes)