The securitisation process in Spain Contents

The securitisation process in Spain. Developments and practical issues

Miguel Ángel Menéndez and Beatriz Sanz

STATISTICS AND CENTRAL BALANCE SHEET DATA OFFICE DEPARTMENT

OECD. WORKING PARTY ON FINANCIAL STATISTICS

Paris, 9 October 2006

2STATISTICS AND CENTRAL BALANCE SHEET DATA OFFICE DEPARTMENT

The securitisation process in SpainContents

1. Types of securitisation regulated in Spain

2. Characteristics of the FVCs created to securitised assets in Spain

3. Reform of the accounting standards for credit institutions and its effect on securitisation

4. Recording of securitisation transactions in the Financial Accounts of

the Spanish Economy

5. Sources of information necessary to measure the different aspects of the securitisation process. Reference to Spanish sources

6. The work of the European System of Central Banks to obtain European Union securitisation statistics


1. Types of securitisation regulated in Spain

• Since 1982, credit institutions can raise funds issuing mortgage-backed securities, backed by their mortgage loans which remained on their balance sheet (a)

• In 1992 the Fondos de Titulización Hipotecaria (Mortgage Securitisation Funds) are regulated (b)

• In 1994 the Fondos de Titulización de Activos (Assets Securitisation Funds) are regulated (c)

• In 2003 the synthetic securitisation is regulated (d)


2. Characteristics of the FVCs created to securitise assets in Spain

• The FVCs are autonomous portfolios of assets without independent legal status whose purpose is to assemble groups of financial assets and other receivables

• FVCs are set up by FVC management companies which perform the functions of administration and legal representation of the FVCs

• They raise funds issuing securities other than shares and borrowing from credit institutions (e)

• There are open and closed FVCs

• The FVCs and their management companies are supervised by the National Securities Market Commission where the incorporation prospectuses is registered and, where applicable, the issue prospectuses are also registered

• Under the synthetic securitisation the counterpart of the credit derivative has to be a credit institution or a securities dealer company (resident or non-resident)


3. Reform of the accounting standards for credit institutions and its effect on

securitisation

• In 2005 new accounting rules for credit institutions enter in force to meet the IAS, for consolidated accounts and for individual credit institutions

• Under the new rules the conditions to derecognise financial assets from the balance sheet are more strict: the risks or the control of the assets should be fully transferred

• These accounting rules have been applied to the securitisation originated since January 2004. Thus, some assets previously derecognised from the balance sheet had to return to it

• The assets transferred to the FVC and the assets returned to the balance sheet of the credit institutions have an effect on the analysis of the credit aggregates: it is necessary to analyse the credit evolution taking into account the credit that has been derecognised from the balance sheet of the credit institutions (f)


4. Recording of securitisation transactions in the Financial Accounts of the Spanish

Economy

The originator derecognises the asset

The originator keeps the asset on its balance sheet

Originator

Financial assets

Reduction in loansIncrease in liquid assets

Increase in liquid assets for the funds transferred by the FVCSynthetic: reduction in liquid assets (premiums) and increase in derivatives

Liabilities No entries Increase in deposits for the funds transferred by the FVC

FVCs

Financial assets

Increase in loansNo change in liquid assets (funds raised transferred to the originator)

Increase in deposits for the funds transferred by the FVCSynthetic: increase in liquid assets (premiums)

LiabilitiesIncrease in securities other than shares and loans

Increase in securities other than shares and loansSyntethic: increase in derivatives

Counterpart sectors of credits

Liabilities Change the counterpart from originator to FVC

No entries


5. Sources of information necessary to measure the different aspects of the securitisation

process. Reference to Spanish sources (g)

Source Information supplied Use Problems

Credit institutions (Originators)

. Outstanding amounts of on-balance sheet securitisation

. Outstanding amounts of off-balance sheet securitisation, with details of the counterpart sectors

. Measure credit aggregates

. Measure securitisationprocess

. Exclude originators other than credit institutions

. Currently, only outstanding amounts are available

FVCs

. Audited annual financial statements

. FVC formation prospectuses and, where applicable, securities issue prospectuses

. Measure the activity of FVCs and the securitisation process

. Include FVCs in the Financial Accounts in the Other financial interemediaries sub-sector

. Heterogeneous accounting

. Dificulties when originator derecognises assets

. Not very detailed information

. Difficulties for some securities issued: early redemptions and issues without prospectuses

Securities markets and s-b-s information on securities portfolios

. S-b-s data for securities issued by FVCs

. S-b-s data on the portfolios of institutional investors and non-residents

. Measure the activity of FVCs in securities markets

. Obtain the counterpart sector for inclusion in the Financial Accounts

. This information is not available for FVCs that issue their securities abroad

. Currently s-b-s data are not available for all institutional sectors


6. The work of the European System of Central Banks to obtain European Union securitisation

statistics (h)

• The objective is to measure the activity of FVCs and the true path of euro area credit aggregates

• Currently the National Central Banks of the European System of Central Banks send to the European Central Bank data on sub-sector Other Financial Intermediaries on the basis of the available information: the statistics are detailed by type of intermediary, mainly Investment Funds and FVCs

• To improve the data and the aggregates the intention is to introduce a homogeneous statistical framework: a guideline to produce national statistics on these financial intermediaries

• For Investment Funds the work is very advanced and a draft regulation is pending endorsement. For FVCs the contents and details of the new guideline are now under discussion


Types of securitisation: chart 1 (1)

Total securities and mortgage-backed bonds issued by Credit institutions

Outstanding amounts

0

50

100

150

200

250

300

350

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

jul-0

6

EU

R b

n

Total securities Mortgage bonds


Types of securitisation: scheme 1 (2)

Originator:Credit

institution

Subscribersof the

securitiesFVC

Mortgage loans

Cash Cash

Securities

FVC for securitise mortgage loans



FVC for securitise assets

Originator FVCSubscribers

of the securities

Credit institution

Assets andreceivables

Cash

Securities

Lo

ans

(ass

ets)

Lo

ans

(liabilities)

Cash



FVC for synthetic securitisation

Originator FVCSubscribers

of thesecurities

Credit institution

Premiun fortransferringrisks (1)

Securities

Lo

ans

(ass

ets)

Lo

ans

(liabilities)

Cash

(1) This transaction has the same effects as a credit derivative


Characteristics of the FVCs created to securitise assets in Spain: chart 1 (5)

Issuance of securities by FVCs and of mortgage-backed securities by credit institutions

Outstanding amounts

0

50

100

150

200

250

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

jul-06

EU

R b

n

Securities issued by FVCs Mortgage-backed securities issued by credit institutions


Reform of the accounting standards for credit institutions and its effect on securitisation : chart

1 (6)

Lending to euro area households for house purchases

8

13

18

23

28

Dec

-03

Mar

-04

Jun-

04

Sep-

04

Dec

-04

Mar

-05

Jun-

05

Sep-

05

Dec

-05

Mar

-06

annu

al p

erce

ntag

e ch

ange

s

Unadjusted total Total adjusted for securitisation


Sources of information necessary to measure the different aspects of the securitisation process.

Reference to Spanish sources: table 1 (7)

FVCs for securitise assets: balance-sheet EUR millions

1995 2000 2004 2005 2006 II

ASSETS

Currency and deposits 63.2 1050.0 43100.0

135990.9

167191.2

Securities other than shares: long-term

- - - 1280.8 1097.2

Loans 1130.8

20456.2

82161.9

40169.2 37240.6

Other assets 24.8 170.0 475.0 1350.0 850.0

Total assets = liabilities 1218.7

21676.2

125736.9

178791.0

206379.0

LIABILITIES

Securities other than shares:

short-term - 1983.7 5107.3 4314.9 5011.0

long-term 1173.4

15921.0

117429.7

170176.0

197068.0

Loans 23.0 3450.0 3000.0 4000.0 4000.0

Other liabilities 22.2 321.5 200.0 300.1 300.0

STATISTICS AND CENTRAL BALANCE SHEET DATA OFFICE DEPARTMENT

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