"European Banks Need To Raise €240bn A Year"• the central banks continue to tighten their criteria for repo lending. The Bank of England has declined to renew its Special Liquidity Scheme (SLS). £287bn of collateral, mostly mortgage-related, was posted and £185bn of funding provided. According to Deutsche Bank, [says Euromoney], SLS swaps [i.e.repos] will begin coming due in earnest in June 2011, with between £10bn and £25bn of maturities each month until January, 2012.
• The Council of Mortgage Lenders has warned of a “huge funding gap”.
• Governments themselves have huge borrowing needs. The UK’s £198bn of Gilts issued in the last year neatly matched the amount bought by the Bank of England using money it created out of thin air under “quantitative easing”. Next year’s government borrowings will have to be funded by real buyers!
• Banks are under pressure from regulators in respect of liquidity matching.
Given all of this, it is reasonable to state that securitisation will have a significant role to play in terms of the banks and indeed the mortgage markets. And that there will be some excellent buying opportunities for those investors sated with Gilts. So long, that is, as the buyers have the expertise to meet the requirements of the Capital Requirements Directive (see Feb 8 2010 blog entry).
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