The Future of Structured Finance
Since the outbreak of the credit crisis in 2007, new structured finance activity has been depressed. Some products (like CDOs of asset-backed securities) have virtually disappeared. Other products (like insurance-linked securities) have experienced relatively strong and rapid recoveries (thanks both to the lessons learned from the crisis by issuers and the demand by investors for non-credit structured products). Still other products (especially CLOs) have experienced fits and starts and cannot seem to decide whether to return in full force or retreat back into dormancy. Meanwhile, the offshore centers that typically play host to the special purpose entity issuers of structured products have suffered from a loss of associated business and heightened uncertainties about the future of structure finance.
Some structured products remain depressed for purely market-based reasons – i.e., demand is low and interest rates and credit spreads make the issuance of such products uneconomic in the current market environment. But in many other cases, a bigger problem seems to be the dark cloud of regulatory uncertainty looming over the structured finance marketplace. Basel III, Dodd-Frank, the Risk Retention Rule, the Conflict of Interest Rule, the Franken Amendment, the Volcker Rule, and various European analogues to those proposed regulations all pose potentially significant problems for the future of structured finance. Complicating matters, these regulatory proposals are themselves fluid and evolving as regulators review numerous comments and as the likely (often chilling) consequences of some of these proposals become clearer to market participants.
In this session, we will explore the major issues that will affect the future of structured finance, both financial and regulatory. Although only time will tell whether, how, and where structured finance makes a comeback, we will try and understand the likely drivers and impediments to the future of this important area of financial activity for offshore financial centers and for the issuers/users of these products.