Brussels bets on deregulation to unlock capital, but critics fear instability. Simpler rules may fuel growth—or reintroduce risks Europe has spent years trying to contain.
The European Commission unveiled its long-awaited proposal to revive the EU’s securitisation market on Tuesday, 17 June. The initiatve is vital for a broader push to channel savings into productive investments under the Savings and Investments Union, or SIU. The reforms aim to strip away regulatory burdens blamed for stifling a financial tool that pools loans into tradable securities. The market thus remains a fraction of its US counterpart.
“Securitisation is a useful instrument to generate additional financing for EU households and companies, including SMEs,” said Maria Luís Albuquerque, EU Commissioner for Financial Services and the Savings and Investments Union. “It also allows investors, such as insurers, to better diversify their investment opportunities. Today’s proposals will contribute to reviving the EU securitisation market by simplifying and enhancing our regulatory and prudential framework while preserving robust safeguards to ensure financial stability.”
Simplification at scale
The proposed reforms target a framework adopted in 2019 to prevent a repeat of the 2008 crisis, which linked securitisation to reckless risk-taking. While those rules bolstered transparency and stability, issuance in the EU stagnated at nine per cent of GDP, compared to 35 per cent in the US. The Commission’s fix hinges on cutting compliance costs and recalibrating capital rules.
Key changes proposed:
- Simplified due diligence and reporting. Issuers will no longer need to report granular data on individual loans within securitised portfolios, slashing compliance costs. Investors’ obligations to scrutinise assets are also eased.
- Risk-sensitive capital rules .Banks and insurers will face capital requirements tailored to the actual risk profile of securitisations, replacing one-size-fits-all thresholds. Mortgages and SME loans could see preferential treatment.
- Liquidity buffer tweaks. Amendments to the Liquidity Coverage Ratio aim to resolve inconsistencies that deterred banks from holding securitisations as liquid assets.
- Third-country restrictions. Non-EU securitisations face higher due diligence hurdles, a move the Commission says will funnel investment into European assets.
„The existing framework safeguarded stability but stifled growth,“ the Commission said in a statement. „These changes strike a better balance.“
The package also tweaks liquidity rules to make securitisations more attractive for banks’ buffers and imposes stricter due diligence on non-EU products—a move Brussels says will prioritise European assets. Draft amendments to Solvency II, set for consultation, aim to reduce „unnecessary prudential costs“ for insurers.
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Mixed response
Yet as lawmakers and industry players digest the plan, fault lines are emerging. Financial institutions greeted the plan with cautious optimism. “Important steps have been taken,“ Michaela Zattler of Germany’s banking association told the German Table.Media server, praising the end of “reporting obligations for each individual loan.“ Jillien Flores of the Managed Funds Association called the reforms “an important reform to promote European growth.“
Securitisation is a useful instrument to generate additional financing for EU households and companies, including SMEs. Maria Luís Albuquerque, EU Commissioner for Financial Services and the SIU
Others voiced concerns and criticism. “There’s a danger Parliament and Council will further slash regulations, jeopardising financial stability,“ warned Sebastian Mack of the Jacques Delors Centre.
Divisions are starkest over third-country rules. Non-EU securitisations face higher due diligence hurdles—a bid to steer capital toward European loans. But Ms Zattler argued this penalises EU firms reliant on overseas markets: “This isn’t particularly intelligent.“
The real economy dilemma
The Commission insists simpler securitisation will unlock €1.2 trillion in capital for SMEs and green projects. Yet sceptics question whether supply-side fixes address weak demand. „We don’t have a credit crunch—we have too few companies wanting to invest,“ said Mr Mack. Ms Zattler countered that demand could rebound by 2027, when rules take effect: „If companies seek credit then, securitisation will deliver.“
The reforms leave the EU’s 2024 green securitisation regime untouched but suggest indirect benefits. „Efficient securitisation could free up capital for green projects,“ notes the proposal. However, with just 0.5 per cent of 2023 issuances labeled green, critics argue bolder incentives are needed.
The EU securitisation landscape remains lopsided: 80 per cent of activity is concentrated in France, Germany, Italy, Spain, and the Netherlands. SMEs, which account for 99% of EU firms, receive but a sliver of securitised funding. Diversification is key, argue critics. Without it, it risks becoming a tool for entrenched players, not growth, the argument goes.
Financial ambitions
Adoption is unlikely before 2027, leaving the reforms vulnerable to economic shifts. A recession could see securitisation vilified anew; a boom might vindicate its role. The proposal now heads to the European Parliament and Council, where clashes loom. Risk vs. reward is one of them; risk-averse MEPs may resist capital-rule changes, fearing a return to pre-2008 excess. Member states with strong U.S. financial ties (e.g., Ireland) could challenge non-EU curbs.
The securitisation push is a litmus test for the SIU’s viability. „If Europe can’t revive this market, its capital markets union will remain half-built,“ a diplomat told Financial Times. For households and firms, the stakes are tangible: the Commission estimates SMEs could see borrowing costs fall 0.3–0.7 per cent if banks pass on capital savings.
Yet as Mr Mack noted, „Securitisation isn’t a silver bullet.“ With €1.6 trillion in pension fund assets parked in low-yield bonds, the EU must tackle deeper issues—tax fragmentation, insolvency regimes—to truly mobilise capital. For now, Brussels bets that cautious deregulation can reignite a market it once saw as irredeemable.
