Against this background, securitisation can potentially play a vital role, and thereby strongly support the financing of the economy, in two main respects:   First, in order to mitigate the potential funding challenges that I have just mentioned, securitisation may contribute to the broadening of the funding base – both intertemporally and geographically –, by transforming illiquid assets into negotiable longterm securities (even if these may not necessarily be very liquid). It may thus help to unblock credit supply constraints in an environment of continued de-leveraging by  BIS Review 84/2010  1  taking regionally or sectorally concentrated credit risk off bank balance sheet and distributing it to a wider investor base.   Second, a proper use of financial engineering techniques, such as securitisation, may provide a better match between the preferences of borrowers and investors in terms of cash flow structure, type of interest rate, degree of risk and currency denomination. This is particularly relevant when the securitisation pool is composed of loans to borrowers who cannot have access to the capital markets on their own, i.e. households and Small and Medium Sized Enterprises (SMEs). In other words, securitisation may function as a bridge between these types of borrowers and those investors who cannot easily access these types of exposures otherwise.
This is natural since structured finance is a combination of manifold features such as different asset types, a variety of interest rate products with diverse maturity profiles and structures, and a variety of legal regimes and market arrangements. Thus, restoring the securitisation markets requires a combination of initiatives, both from the private and the public sector. The Eurosystem is contributing, first of all, by accepting structured finance assets as collateral. This proved and still proves a great support to this market segment during the crisis, as it helped and continues to help to avoid a sudden and disruptive unavailability of funding to originators of ABS. Second, as mentioned earlier, by introducing a loan level data requirement to our set of eligibility criteria, we may contribute to increasing the disclosure standards for the market at large. However, more needs to be done, as many of those required steps, for example enhancing secondary market liquidity, go beyond the scope for direct action by the Eurosystem. Looking ahead, a self-sustained revival of the ABS market requires fundamental changes. It is high time to raise to the challenges of transparency, standardisation and product simplicity. This is where the industry has to step up its efforts in order to help decisively in restoring confidence in the securitisation markets. Thank you for your attention. 6  BIS Review 84/2010