Efforts are being made both by the financial industry and the policy-making community to address the most important micro issues, including the lack of transparency, product complexity and inappropriate incentives in the  4  BIS Review 75/2010  originate-to-distribute model. However, in recent months there have been some, albeit nascent, signs of improvement in securitisation activity, in part supported by a narrowing of spreads on securitised products (i.e. yield on securitised products over Libor). The narrowing spreads, which reflects the compensation investors are demanding for holding these assets, could bring prices closer to levels where issuance of ABS securities makes economic sense. This has been indicated in the responses to ECB bank lending surveys and in lower retention rates by banks for newly-issued ABS. While it is difficult to disentangle the relative contribution of micro and macro factors to the improvement, it seems clear that the improved economic outlook has played an important role. IV. Overall assessment  Let me now conclude with the overall assessment of the identified risks to euro area financial system stability (slide 15). Although the main risks to euro area financial stability essentially remain the same as those to which attention was drawn in the last issue of the FSR, their relative importance has changed significantly over the past six months.
One specific concern that some have expressed about Basel II’s applicability in emerging markets is that banks with more basic risk management systems will rely on external credit ratings issued by rating agencies under Basel II’s standardised approach to credit risk. In some emerging markets, there may still be few, if any, rated companies. The Committee has been mindful of this concern. If supervisors are uncomfortable with the use of external ratings in their countries, they may opt to weight all corporate claims at 100%, while sovereigns and banks can be risk weighted according to the risk scores of export credit agencies. This eliminates the dependence on ratings issued by external credit agencies. Indeed, our discussions with colleagues and counterparts from countries outside the Committee, including India, as I mentioned, have been instrumental in addressing other concerns in the capital framework. Thanks to our consultations, we have endeavoured to address several other broad issues in the new framework, including the document’s apparent complexity and the consistency of its application internationally, which I will set out now. Complexity One inevitable by-product of designing a comprehensive three-pillar framework with a range of options for different circumstances is increased complexity. The members of the Basel Committee certainly recognise that it is far easier to enforce a simple rule than a complicated one.