Jean-Pierre Landau: Some thoughts on securitization and financial turbulences Remarks by Mr Jean-Pierre Landau, Deputy Governor of the Bank of France, at the Paris EUROPLACE, Financial Forum, New York, 22 October 2007. *  *  *  There is a paradox in the current situation. However we measure it (by the level of spreads or volatility), the shock created in credit markets by losses on subprime loans is without precedent. And yet, the losses themselves, while significant and spectacular for some institutions, would not seem to pose a major risk to the health of the financial system. Most notable, the turbulences occurred in a very favorable macro economic environment. This disproportion between the cause and the effect points to some existing fragilities – that need to be addressed – in the securitized model of capital markets. There is no rush to take measures, even less regulate. But there is no room for complacency either. Rather, we need to come to a diagnosis and think of the desirable characteristics of a robust securitization model. The current model of securitization, as it has developed in the last decade, has two distinctive features: •  One we were aware of: an increasing complexity of instruments, which combine an extensive use of derivatives with customization to individual investors' needs. This has made valuation and risk assessment more difficult. •  One we rediscovered during the turmoil: the fragility of off-balance sheet structures and vehicles which underpinned securitization. Conduits, especially SIVs, were not built to absorb shocks.
Let me focus in the minutes I have at my disposal on several economic issues. Our debate is so more important for it takes place at a time of some economic slowdown all over Europe and of an erosion of multilateralism, of spreading trade conflicts. The prospect of a hard Brexit is very annoying for all of us and I still very much hope that such a denouement would be avoided. Likewise, it is high time to strike a deal on the Multiannual Financial Framework so that the great challenges the Union is facing (protection of borders, cyber fare, climate change, conflicts in near and more remote neighborhoods, etc.) find proper conciliation with the need to preserve the cohesion of the Union and avoid further fragmentation. I also trust that EU leaders will find the right balance to address key institutional and policy related weaknesses of the Euro area. I mention this, for Romania, like other Non-member States, is bound by EU accession treaties to join the single currency area eventually. And hopefully, this will happen in the not too distant future. In this regard I wish to mention that two major documents on Romania’s path to the Euro area (an analytical report and a Plan of action) have been recently completed and have been subjected to the scrutiny and approval of the political parties and the Parliament. I was one of the vice-chairs of the National Commission which guided the completion of the two documents.