With future investment needs projected to grow, achieving an optimal allocation of capital is ever‑more urgent to enhance the EU’s productivity, competitiveness and resilience. A sound and successful EU securitisation market has an important role to play in funding EU strategic priorities and stimulating innovation. Securitisation also allows banks to transfer risk outside of the banking system, thus fostering greater risk diversification within the financial system. However, it is an underexploited tool in Europe. Relaunching this market is consistently identified as a key action by industry, Member States, in the Draghi report and competitiveness compass.
The 2008 financial crisis exposed the risks of complex, opaque securitisation instruments, and the current framework was introduced in response: to tackle these risks, increase financial stability and rebuild investor trust. We have achieved these objectives. Nowadays, the framework governing EU securitisations has made the market safer, more transparent, and less stigmatised. The credit performance of European securitisations is comparable to those of similarly rated European corporate or global sovereign bonds. Default rates of EU securitisations are significantly lower than those of US securitisations, and very few senior tranches have suffered loss.
We recently concluded a targeted market consultation, in which we sought stakeholders’ views and experience on the functioning and future of the securitisation framework. We received detailed feedback from 133 responses, and these are informing our reflections on the way forward. Overall, the consensus is that the current framework is too complex and generates high regulatory costs. In particular, market participants report unnecessary burden, onerous due diligence and disclosure requirements, and punitive capital treatment.
Overall, the consultation has revealed strong demand for more securitisation activity from EU market participants, but also the need for more simplification and proportionality. There is a real opportunity to further deepen EU capital markets and to enable capital market investors to indirectly finance the EU economy. In the absence of EU action, issuance and investment barriers will continue to inhibit the development of a vibrant EU securitisation market.
So, we are listening, and we are working towards solutions. The purpose of the review is to better enable financial institutions across the EU to increase their use of high‑quality securitisation by making the framework less burdensome, more principles‑based, more proportional and more risk‑sensitive, while continuing to safeguard financial stability. Potential targeted legislative changes will focus on the main barriers to securitisation issuance and investment, such as certain transparency, due diligence, and prudential requirements for banks and insurance companies.
However, a revitalised EU securitisation market cannot be achieved by regulation alone. We are counting on industry to work proactively towards a more vibrant and dynamic European securitisation ecosystem. For example, there are plenty of ideas concerning a possible future European or national‑level securitisation platform(s). Any such initiative requires careful reflection and collaboration between industry and regulators. We are counting on private sector buy‑in going forward as we look to explore new and innovative methods towards strengthening our securitisation market. The review of the EU securitisation framework will be an important step in deepening EU capital markets, freeing up additional lending to EU households and businesses, and building our savings and investments union.
Alexandra Jour‑Schroeder is Deputy Director‑General in the Commission Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA). This article was previously published in the April issue of the Eurofi Magazine.
