LONDON Regulators are set to ease capital requirements on securitised debt within about two years to help wean banks off central bank money, a source with knowledge of the matter said on Monday.
The Basel Committee on Banking Supervision will publish its revised proposals by year-end or early in 2014 concerning how much capital banks must set aside to cover bonds based on bundles of loans such as mortgages.
The securitisation market was shunned after products based on U.S. home loans became untradeable in 2007 when borrowers defaulted on the underlying mortgages. This sparked a credit crunch that led to a global financial crisis.
The Basel Committee of central bankers and regulators from nearly 30 countries proposed tougher capital requirements on securitised debt last December but they have run into strong opposition from the industry.
Banks have already had to increase sharply the amount of capital set aside against securitised debt under an accord known as Basel 2.5 and say topping up those levels, as proposed by Basel, would make it impossible to revive the market.
The source said the committee was now discussing how to "re-calibrate" the capital requirements but warned banks not to expect a big reversal.
"To the extent that capital requirements would be moderated, it's not going all the way back to pre-crisis levels," the source said.
Basel is unlikely to reach final agreement until late in 2014 and then its members would typically need another year to put the changes in place, the source added.
The Financial Times reported on Sunday that Basel was looking to row back on its securitisation plans in an interview with the committee's chairman Stefan Ingves.
"We need to look at the appropriateness of various structures and pass judgment on them. This should happen next year," Ingves was quoted as saying.
Regulators say factors other than capital may be holding back the market, such as distrust among investors after being burned in the crisis.
The global Financial Stability Board (FSB), to which the Basel Committee reports, the Bank of England and others are debating how to kick-start the securitisation market.
Many lenders are using cheap money from central banks for funding and policymakers see securitisation as a key tool for them to switch to private sources of funding.
Basel has already allowed banks to hold securitised products in liquidity buffers they must have from 2015 to help bring the market back in from the cold.
Figures from Morgan Stanley show that issuance of asset backed securities fell from nearly 500 billion euros in 2006 to well under 100 billion euros last year.
(Reporting by Huw Jones, editing by Gareth Jones)