By Neil Shah
The new Basel II international accord, to be applied to U.S. banks with total assets of $250 billion or more, is likely to make investing through off-balance sheet SIVs less attractive for banks, which are the main sponsors of such vehicles, speakers at the American Securitization Forum conference in Las Vegas said.
The vehicles have been unable to fund themselves normally for many months amid the U.S. credit crisis and the market value of their investment portfolios has plummeted, prompting ratings downgrades and mass restructuring efforts.
Banks will find it more efficient "to hold highly-rated assets on their own balance sheets" under Basel II, Dominic Swan, managing director at HSBC Bank, told Reuters after speaking on a panel at the conference.
To be sure, full implementation of Basel II for U.S. banks is some way off.
Bank examiners may also look more carefully at how banks treat complex and illiquid securities given the recent U.S. mortgage turmoil, which has sparked waves of write-downs by financial institutions.
"The SIV market as we know it is certainly dead," said panelist David McCollum, managing director at MBIA, which has sponsored a vehicle called Hudson-Thames Capital. "The odds would be very long" for a recovery, he said.
In the meantime, SIVs in the process of restructuring will probably sell more of their investments, though it is unclear when that will happen, according to panelist Jenna Collins, portfolio manager at Cairn Capital.
"I'd say 'see you next year,' but I don't know if we will," he said.
