Reforms are needed to restore the asset-backed securities (ABS) market, which suffered a major setback during the financial crisis that began in 2007, according to a paper released today by the C.D. Howe Institute.
In The Canadian ABS Market: Where Do We Go From Here?, authors David C. Allan and Philippe Bergevin write that the role of ABS in the broader market collapse has been well documented: North American policy-makers have readily acknowledged that this market must play a major role in the global economic recovery, and policy-makers have begun to examine ways to reform the ABS market.
The authors argue that an analysis of current reform proposals demonstrates the need for a policy approach that reflects Canadian market realities. Allan and Bergevin indicated that a prudent solution would be to impose new disclosure requirements for all public market medium-term note issuance—not just for those wishing to access the market through a shelf offering.
The authors also suggest that while enhanced transparency and better accountability regimes are welcome steps, they also risk constraining the return of full liquidity to the ABS market. “If senior ABS market capacity is to be maximized, a regulatory approach mandating the participation of alternative market gatekeepers in addition to, or in place of, transparency may need to be considered,” they write.