Friday

6th Dec 2019

Use of securitised financial products grows without EU help

  • Securitisation helped cause the 2008 financial crisis, but the EU says it is essentially a safe product that can help SMEs (Photo: Universiteitskrant Univers)

Securitisation, a controversial financial product which the EU wants to endorse, has become more popular in 2016, despite new EU rules not having been agreed yet.

According to new figures, the European financial services industry issued €237.6 billion in securitised product last year, the highest figure since 2012, putting into doubt the need for proposed EU legislation.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 30-day free trial.

... or join as a group

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. The complex financial tools helped bring about the 2008 financial crisis in the United States.

The European Commission wants to “revitalise” the securitisation market and release it from its “stigma”.

While the Commission has not set a specific target to achieve, its communication department usually speaks about getting securitisation back to the “pre-crisis average”.

But according to data released on Friday (27 January) by the Association for Financial Markets in Europe (AFME), a lobby group for the financial service sector, issuance of securitisation is now higher than pre-crisis average for three years in a row.

(Photo: EUobserver)

Securitisation in Europe

Nevertheless, the EU commission still wants to introduce criteria for a new class of securitisation, which will receive the label “simple, transparent and standardised”.

It proposed a legislative text in September 2015. The Council, where national governments meet, and the European Parliament have reached their respective views on the text and now need to negotiate a compromise.

The two sides have had one meeting so far, last week in Strasbourg, with the next two rounds of negotiations scheduled for 7 February and 7 March, according to an EU source.

The responsible EU commissioner, Valdis Dombrovskis, said on Thursday (26 January) that he is “counting on the European Parliament and Council to reach swift agreement” on the file.

“There is broad international consensus that straightforward securitisations have a positive role to play in a modern economy,” he said.

The idea is that more securitisation will lead to banks having more capital available to lend to small- and medium-sized enterprises (SMEs), but empirical evidence for that expectation is scarce.

Barclays Bank told the commission, ahead of the unveiling of the plan, “it is unlikely that identifying new investors through securitisation would create significant increased lending to the SME market.”

In an interview last month, lobby group AFME said securitisation may not solve all problems, but can help.

“It should not be banned or treated as toxic waste,” said Anna Bak, a manager at the securitisation division of AFME.

She also pointed out that 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.

AFME's figures on Friday showed that in 2016 only 35 percent of created securities had been sold.

However, with €96.4 billion in securitised product placed on the market, it did reach the highest figure since 2008.

This article was updated on 27 January 2017, 17:49, to include the paragraph about scheduled negotiations

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 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

Promises and doubts: Africa's free-trade adventure

The EU is hoping that a continent-wide free trade agreement in Africa will help lift millions out of poverty and help solve issues of security and migration. But its message of values and equal partnership do not resonate with everyone.

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  2. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  3. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms
  4. Nordic Council of MinistersNordic Climate Action Weeks in December
  5. UNESDAUNESDA welcomes Nicholas Hodac as new Director General
  6. Nordic Council of MinistersBrussels welcomes Nordic culture

Latest News

  1. Migrants paying to get detained in Libyan centres
  2. Searching for solidarity in EU asylum policy
  3. Will Michel lead on lobbying transparency at Council?
  4. Blood from stone: What did British PR firm do for Malta?
  5. EU Commission defends Eurobarometer methodology
  6. Timmermans warns on cost of inaction on climate
  7. Development to fuel change
  8. Does EU have role in stopping backsliding in Georgia?

Stakeholders' Highlights

  1. UNESDAUNESDA appoints Nicholas Hodac as Director General
  2. UNESDASoft drinks industry co-signs Circular Plastics Alliance Declaration
  3. FEANIEngineers Europe Advisory Group: Building the engineers of the future
  4. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  5. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  6. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues

Join EUobserver

Support quality EU news

Join us