Tuesday

21st Nov 2017

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.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

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.

MEPs ponder how to fight tax havens

After the Paradise Papers brought new revelations about tax dodging across the globe, including in the EU, the European Parliament wonders how to step up the fight.

News in Brief

  1. European Banking Authority will move to Paris
  2. EU court threatens daily fine over Polish forest logging
  3. EU medicines agency will move to Milan or Amsterdam
  4. Amsterdam, Copenhagen, Milan in next round of EMA vote
  5. Three countries pull out of medicines agency Brexit race
  6. Schulz calls for new German elections
  7. EU Commission 'confident' on German stability
  8. EU adopts new border check rules

Stakeholders' Highlights

  1. Bio-Based IndustriesBio-Based Industries: European Growth is in Our Nature!
  2. Dialogue PlatformErdogan's Most Vulnerable Victims: Women and Children
  3. UNICEFEuropean Parliament Marks World Children's Day by Launching Dialogue With Children
  4. European Jewish CongressAntisemitism in Europe Today: Is It Still a Threat to Free and Open Society?
  5. Counter BalanceNew Report: Juncker Plan Backs Billions in Fossil Fuels and Carbon-Heavy Infrastructure
  6. Nordic Council of MinistersNordic countries prioritise fossil fuel subsidy reform
  7. Mission of China to the EUNew era for China brings new opportunities to all
  8. ACCASmall and Medium Sized Practices Must 'Offer the Whole Package'
  9. UNICEFAhead of the African Union - EU Summit, Survey Highlights Impact of Conflict on Education
  10. Nordic Council of MinistersNordic Council Calls for Closer Co-Operation on Foreign Policy
  11. Swedish EnterprisesTrilogue Negotiations - Striking the Balance Between Transparency and Efficiency
  12. Access EuropeProspects for US-EU Relations Under the Trump Administration - 28 November 2017