Magazine article American Banker

Securitization: Still Vital, Still Impaired

Magazine article American Banker

Securitization: Still Vital, Still Impaired

Article excerpt

Byline: Harry Terris

Securitization has remained a vital funding source to the credit card industry during the thaw brought on by the government's emergency Term Asset-Backed Securities Loan Facility. But the future of this market is in flux.

Among other things, new accounting rules that effectively eliminate off-balance-sheet treatment will go into effect next year, undermining some of the rationale for securitization by requiring more capital and loss reserves at issuers.

Also, Talf support for consumer ABS is set to expire at the end of March, though the Federal Reserve Board and the Treasury Department have said they would consider further extensions.

Talf broke a six-month freeze in issuance that began last September. Securitization funded 48.8% of revolving consumer credit in July, 64 basis points more than the year prior, according to the Fed. (Total revolving credit has begun a historic contraction, registering a year-over-year decline in February for the first time ever and continuing to fall through July.)

In a report published this month, Moody's Investors Service Inc. said it is unclear what the level of investor interest in asset-backed bonds will be after Talf ends - even when collateral credit performance recovers. Higher risk premiums will probably help to make securitization more expensive, Moody's said.

On one end of the spectrum, JPMorgan Chase & Co.'s chief executive, Jamie Dimon, has said it is unlikely that his company will securitize credit card receivables in the future because other sources of funding available to it will probably be cheaper. …

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