Brussels, 30/01/2015 (Agence Europe) - The EU Financial Stability Commissioner's priority of a capital market union is multidimensional and will stretch into the long-term. First of all, the European Commission will publish a Green Paper on Wednesday 18 February outlining the areas where the most work has already been done, namely breathing new life into the securitisation markets and the company prospectus directive (see EUROPE 11241).
Securitisation is a way that banks turn loans into securities and then sell bundles of loans on to other investors. It improves financial liquidity, but is criticised for helping the 2008 financial crisis to spread by on-selling bundles of sub-prime mortgages in the United States.
On Friday 30 January, a high-ranking European official said that people are jumpy about securitisiation because of the subprime mortgage crisis and wonder whether there are risks inherent in securitisation. But he said that if Europe can make the system more fluid and more attractive by establishing secure and transparent principles for securitisation to avoid the mistakes of the past, then capital that is currently frozen could be released to facilitate the financing of economic operators, but wondered whether the problem of financing for companies was one of plumbing or rather a tap that nobody turns on.
German finance minister Wolfgang Schäuble often argues that weak investment in Europe is mainly a problem of demand.
At the end of 2014, the Ecofin Council said a well-regulated securitisation market should be facilitated to boost financing for small and medium-sized businesses by spreading risk out over the markets (see EUROPE 11215). The ministers invited the Commission to draw up by the summer draft legislation for simple and transparent securitised products.
At the Commission, an action plan has been announced that will follow on the heels of the Green Paper after the summer break and any legislation would be published towards the end of the year. The timing of any potential legislation will depend on work at global level (Financial Stability Council, BIS and IOSCO) and follow-up to joint work between the ECB and the Bank of England. Another European source pointed out that one was not starting from nothing in the EU because implementation measures for the CRD IV legislation in the banking sector and Solvency II rules in the insurance sector foreseen reduced capital requirements for high-quality securitised products.
Review of the company prospectus directive. In its consideration of how to make it easier for European companies to access the financial markets, the Commission is considering a review of the European rules requiring quoted companies to publish a prospectus. At the end of 2010, changes to the EU company prospectus directive raised the threshold at which an issuance is exempt from the requirement to publish a prospectus from €2.5 million to €5 million (see EUROPE 10233). (MB)