Deciphering Securitisation and Covered Bonds : Economic analysis and regulations

This study performs a comparative analysis of Asset Backed Securities (ABS) and Covered Bonds (CBs) on economic and regulatory grounds. ABS receive a mass criticism after the global financial crisis and they were strictly regulated. However, CBs receive a favourable treatment in regulations as compared to ABS. European regulators are currently trying to revive this market but the strict regulations are serving as a major hindrance. The study evaluated the blames blaced on ABS and the actual problem lying in this market through emipirical analysis. One of the major blames place on securitisation is that securitising banks take elevated risk. The finding of my empirical analysis do not support this perception. Further empirical analysis show that the problem in securitisaiton market is large scale securitisation and not the securitisation per se. On the basis of these findings, I introduce the concept of incremental regulations. The regulators needs to control the out of bounds securitisation. Flat regulatory treatment may not achieve the objective of rectifying the problems of this market. Incremental regulations will not only help solving the problems lying in this market but they will also help in reviving the securitisation market.