Sunday

21st Apr 2019

Analysis

Plan to 'revitalise' complex financial products lacks clear target

The European Union is trying to “revitalise” a market for controversial financial products, but one of the goals appears to already have been achieved without the EU's help.

Securitisation is the packaging of loans, mortgages, or other contractual debts into securities that can then be sold on the market, together with the risk attached to those debts.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • Securitisation is the packaging loans, mortgages, or other contractual debts into securities that can then be sold on the market, together with the risk attached to those debts. (Photo: Cory Doctorow)

It had an instrumental role in the financial crisis of 2008, but the European Commission says giving the securitisation market a boost can help the real economy.

The commission has not given a target figure of when “revitalisation” will have been achieved, but spoke in a press release of going back to the “pre-crisis average”.

The commission did not want to comment on the record, but one commission official said that if the market would return to average pre-crisis issuance levels, this would generate €100-€150 billion in additional funding for the economy.

“This would already be a major achievement for the securitisation markets,” the commission official said.

EUobserver looked at how average issuance levels have done so far, and found that more securities have been created through securitisation since the crisis than before the crisis.

This website collected data from the Association for Financial Markets in Europe (AFME), a lobby group for the financial service sector, and the Securities Industry and Financial Markets Association, its US-based counterpart.

Taking a very narrow view, the "pre-crisis" years are 1996-2006. The average issuance of securities in Europe was €168 billion.

When including 2007, the average was €203 billion. When including 2008 – when the financial crisis was in full swing – the average was €251 billion.

(Photo: EUobserver)

Last week, AFME released data for the third quarter of 2016. The first three quarters of 2016 were the best three quarters since 2012.

Taking the most recent data into account, the average annual issuance of securitisation since 2009, is €270 billion.

Last year the figure was €216 billion.

Even when correcting for inflation, the post-crisis period is already better than the pre-crisis period.

Converting the averages to today's prices, the average since 2009 is €282 billion, compared to a 1996-2007 average of €244 billion.

One could, therefore, argue that securitisation has on average already reached pre-crisis levels again.

But according to Anna Bak, a manager at the securitisation division of AFME, the financial sector lobby group, looking at the creation of securities is not enough. They also need to be sold.

“The commission's securitisation proposal will be a success when we see a trend towards more securities being placed on the market in Europe,” Bak told EUobserver.

In recent years, financial institutions have bundled loans, mortgages, or other contractual debts, but often kept them on their balance sheet, instead of selling off the risks to those debts.

“A lot of securitisation done today is done by banks to obtain collateral, to be eligible for ECB credit,” said Bak, referring to the European Central Bank. Collateral is something a lender can seize if the borrower does not pay back a loan.

The EU commission official, who would speak only when not being named, also noted that “while in 2007 69 percent of issuance was placed, today only 35 percent is placed, the rest being retained by issuers”.

“The market has not revitalised itself, it is instead stuck to issuance levels of the early 2000s,” the official noted, indicating that these levels are apparently too low.

'Helpful' to small businesses

The commission has argued that securitisation would help small and medium-sized enterprises (SMEs), although former capital markets commissioner Jonathan Hill acknowledged it had no concrete evidence of that.

Indeed, a regular survey of the ECB said in November that access to capital is a decreasing concern for SMEs. They are more worried about other challenges, like finding customers and the cost of production and labour.

Yet AFME still thinks securitisation can help.

“Securitisation is not going to solve all problems, but it is helpful. It should not be banned or treated as toxic waste,” said Bak.

Interview

MEPs wary of small print in EU securitisation bill

Paul Tang, the Dutch economist and MEP shepherding through the EU's securitisation bill, casts doubt on claims the risky sector can bring EU states an extra €100 billion.

EU public lacks voice on banking laws

The complexity of financial laws and lack of NGO resources means the “man in the street” has little say on EU banking regulation, the EU Commission has warned.

EU wants to fast-track the capital markets union

The European Commission says that Brexit and the loss of the City of London, the EU's main place for finance, is a reason to accelerate the integration of the bloc's financial markets.

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Counter BalanceSign the petition to help reform the EU’s Bank
  2. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  3. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  4. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  5. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  6. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  7. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  8. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  9. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  10. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  11. Nordic Council of MinistersNordic commitment to driving global gender equality
  12. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan

Latest News

  1. Romania drafts EU code on NGO migrant rescues
  2. Bulgaria, Hungary, and Malta shamed on press unfreedom
  3. EU drafts $20bn US sanctions list in aviation dispute
  4. Brunei defends stoning to death of gay men in EU letter
  5. US Democrats side with Ireland on Brexit
  6. Wifi or 5G to connect EU cars? MEPs weigh in
  7. How Brexit may harm the new EU parliament
  8. EU parliament backs whistleblower law

Stakeholders' Highlights

  1. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  2. Nordic Council of MinistersNordic talks on parental leave at the UN
  3. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  4. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  5. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  6. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  7. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  8. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  9. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  10. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  11. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  12. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov

Join EUobserver

Support quality EU news

Join us