The financial sophistication of Vicky Ford MEP

This is a bit of a well, D\’oh, moment:

Banks have increasingly turned to the bonds, considered an ultra-safe form of secured funding, because the market for straightforward securitisations is still struggling to recover from the financial crisis.

Both forms involve repackaging thousands of loans, such as mortgages, into new bonds, but unlike securitisations, the loans backing covered bonds stay on a bank’s books, even though they are ringfenced for the bondholders. But encumbering banks’ assets like this leaves less for other creditors, including depositors, warned Vicky Ford, an MEP for the UK’s Conservative party and a former securitisation banker.

“The more assets passing into covered bonds, the less assets on the balance sheet for other creditors,” she told an industry conference in Brussels on Wednesday.

A blinding insight I think you\’ll agree? The more assets that are secured the fewer are unsecured?

3 comments on “The financial sophistication of Vicky Ford MEP

  1. Don’t knock it too quickly.

    An accurate, if blitheringly obvious, conclusion is considerably more attractive than much of the economic wisdom of the modal MEP.

  2. This is, is it not, the sector reputed to be populated by the highly talented, whose talent justifies huge bonuses to reward them and low tax rates to retain them here?

    I wonder sometimes whether I am in Wonderland, where Humpty Dumpty has decreed that being thick should be described as being talented.

  3. I think this might actually be a disguised dig at higher capital adequacy requirements. Normal securitisations allow banks to unload assets from their balance sheet, thus freeing up capital so they can lend more. If assets used as collateral in a bond issue remain on the balance sheet they still require capital to be allocated, so the bank’s ability to lend remains constrained despite the increased funding. Couple this with higher capital requirements as well, and the bank’s ability to make new loans is starting to look a bit thin.

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