The author is head of PIMCO's European ABS team and probably has a couple angles but the premise is interesting.
From PIMCO:
Since the Lehman crisis, asset-backed securities (ABS) have struggled to regain their status as a key funding instrument for European banks.
- We believe ABS issuance will likely increase in Europe as eurozone developments and possible future bail-ins potentially result in higher risk premiums and funding costs for European banks.
- Although regulators are playing catch-up, capital markets are making room for a more credit-intensive product, helping to lead the way for a resurgence in ABS.
- Due to concerns over the security of bank deposits, investors may look to the ABS sector, which offers collateralized bonds that are free of bail-in risk.
Historically, ABS emerged in 2000 as an important funding instrument in Europe, particularly among banks. The pooling of assets into financial instruments, known as securitization, enabled capital market participants to invest in new asset classes through granular pools of assets that are typically too small and illiquid for individual investments. Between 2000 and 2006, the volume of ABS issuances in Europe alone rose to more than €500 billion.
However, as the U.S. subprime mortgage crisis escalated into a global credit crisis, ABS products were criticized for transferring credit risk to unsophisticated investors in a complex and nontransparent fashion. Consequently, policymakers identified ABS as a key driver of the credit crisis, which peaked with the collapse of Lehman Brothers in 2008. Despite the fact that European ABS did not suffer losses anywhere close to what had been realized in parts of the U.S. market, European ABS were nevertheless indiscriminately discredited in the same manner. In response, European regulators started to treat ABS more harshly, imposing higher capital charges and other restrictions for investors. Trading and placement levels of ABS fell significantly after 2007 as many market participants withdrew from the asset class completely (see Figure 1).
However, bolstered by renewed interest, ABS markets in Europe have slowly recovered since 2010 and placed issuances have increased, though to much lower levels than before the crisis. Are ABS once more gaining favour as an important capital market instrument among Europe’s banking institutions? We think so.
Banks in Europe are on a deleveraging path In the aftermath of the global credit crisis, developments in Spain, and more recently in Cyprus, continue to highlight the substantial challenges that Europe’s banking system is facing. Although Ireland, Malta and Cyprus were extreme examples of banks’ balance sheets reaching multiples of their respective country’s GDP, Europe simply remains overbanked. More stringent capital requirements set out by the Basel Accords have placed demands on banks to deleverage. The trend to shrink balance sheets has been in place for several years now and is targeted through a combination of both asset sales and a reduction of the lending business. Banks not only face increased capital costs, but their debt funding costs have moved up as well. While U.S. banks can rely to a large extent on relatively attractive deposit funding, European banks, on the other hand, are much more dependent on funding through the capital markets.
Lessons from Cyprus should lead to increasing funding costs for banks….
The decision in Cyprus to have bank depositors participate in the restructuring of the country’s insolvent banks couldn’t have come at a more inopportune time, while political commentary from European policymakers who saw Cyprus as a potential model for the rest of Europe only added fuel to the fire. Although the inclusion of bank creditors in the costs of a bank restructuring has become more frequent – as highlighted by the recent nationalization of SNS Bank in the Netherlands, where subordinated debt was written off entirely – the involvement of senior note holders or bank depositors has been avoided in the past. With Cyprus, however, the taboo has been broken. While politicians openly debated whether Cyprus’ bank restructuring could and should serve as a blueprint for other European banks, the message was clear: Bank deposits are no longer a safe investment as future bail-ins of depositors can no longer be ruled out. This conclusion should eventually result in higher risk premiums and funding costs for European banks....MUCH MORE
