Decline of SPV paper on the balance sheet
The debt paper issued by SPVs and held by banks at the end of April 2011 amounted to EUR 190 billion and has declined by EUR 50 billion since the end of last year. Dutch banks primarily use SPVs to sell on and make tradable the mortgages and other loans they have issued. This is called securitisation. The SPV buys mortgages and other loans from the bank and finances this by issuing debt paper. In recent years, banks bought a lot of debt paper from their “own” SPVs. On the one hand because of the decline in demand from institutional investors for debt paper from SPVs and on the other hand because of the possible use of these securities as collateral for loans from the Eurosystem. A small part of the recent decline in debt paper from SPVs on banks’ balance sheets is caused by the renewed introduction in the market of debt paper from SPVs.
In addition, part of the debt paper from SPVs can no longer be used as collateral for loans from the Eurosystem due to more stringent requirements. As a result, several securitisation programmes have been ended, the debt paper is redeemed and the originally transferred mortgages and other loans are re-entered on the bank’s balance sheet. In addition, securitisation programmes have been reversed so that the underlying mortgages and other loans can be used as collateral for the issuance of covered bonds. These securities are covered by loans; both the loans and the securities issued remain on the bank’s balance sheet. In addition, in the reversal or restructuring of securitisation programmes other more micro-economic reasons, such as efficiency considerations, may play a role.
Increased interest in government paper
Government bonds held by Dutch banks at the end of April 2011 amounted to approximately EUR 100 billion. The increased interest in government bonds started mid-2009. Between June 2009 and April 2011, government bonds on banks’ balance sheets increased by EUR 30 billion. In the past six months, the value of government bonds held by banks decreased somewhat. A large majority of this paper held by Dutch banks has been issued by governments in the euro area, in particular the Dutch (EUR 30 billion), German (EUR 25 billion) and French (EUR 20 billion) governments. Government bonds issued by Greece, Ireland and Portugal in the possession of banks amount to approximately EUR 2 billion in total. Dutch banks are not alone in their increased interest in government bonds. Banks in other euro countries also purchased significant amounts of debt paper from EMU governments (an increase of EUR 140 billion) in the past few years.