High-Quality Securitizations

Abstract

The proposed label for high-quality securitizations (HQS), also known as simple, transparent, and standard securitizations, emerged from European private-sector efforts to label new securitizations as having been originated in accordance with a common set of agreed criteria representing industry best practice, distinct from past underwriting practices that were giving securitization a bad reputation. The goal behind this movement is for securitizations that merit this label to receive less onerous regulatory capital and liquidity treatment in addition to other benefits. There is more momentum behind these efforts in Europe than in the United States. HQS is a strong concept but still lacks a concrete definition. It would best be established as a global standard, but complications arise from differing regulations and policy goals among jurisdictions. Even if a set of standards is agreed across jurisdictions, there is still debate over who—for example, issuers, investors, or regulators—should determine whether a particular securitization qualifies for the label. And there are still a number of asset classes effectively excluded from HQS. Nonetheless, implementation of some form of HQS-type label over the next several years seems likely.