Negotiators from the European Parliament and the German Presidency of the EU Council reached a political agreement on the evening of Wednesday 9 December regarding adjustments to the European framework on securitisation as proposed by the Commission in July to support economic recovery after Covid-19 (see EUROPE 12535/11).
“This agreement will allow banks to issue more loans to businesses and help the economy through the difficult times we are currently facing and that lie ahead”, Paul Tang (S&D, the Netherlands), who is one of the European Parliament rapporteurs on the issue.
The legislative proposals aim to facilitate the use of securitisation – an instrument that allows banks to pool loans, convert them into securities and sell them in the capital markets.
The agreement maintains the proposal to introduce a specific treatment for securitisations of non-performing exposures, which would allow banks to lend more and lighten their balance sheets.
It also maintains the extension of the Simple, Transparent and Standardised Securitisation (STS) framework to on-balance-sheet synthetic securitisations – a type of securitisation in which the originator retains ownership of the underlying exposures, as opposed to traditional securitisations, where these exposures are normally sold to another entity.
According to our information, one of the last points to be settled before this third trilogue was on the subject of guarantees. We were told that on this issue, investors want their collateral to be lodged with a third party so as not to run counterparty risks vis-à-vis the bank; banks, on the other hand, want to be able to keep the collateral in the form of liquid assets on their balance sheet and use it freely as they see fit.
The position of the European Parliament was closer to that of the investors, as counterparty risk is also excluded in the current framework of capital transfer systems. Some Member States, however, were more on the side of the banks, fearing that the European Parliament’s solution would be too costly. The compromise that has been finally reached provides for a solution that takes both possibilities into account.
Furthermore, the final agreement incorporates the EU Council’s proposal for specific prudential supervision for the synthetic excess spread in the Capital Requirements Regulation (CRR), in order to guard against the risk of its potential misuse for regulatory arbitrage purposes (see EUROPE 12586/30).
It also maintains the European Parliament position on the development of standards for reporting on the sustainability of securitisation products and the proposal requesting that the European Banking Authority (EBA) considers the development of a specific framework for sustainable securitisation (see EUROPE 12599/7).
For its part, the European Commission has welcomed the agreement, assuring that the new rules “do not in any way dilute the high standards of investor protection we have in the EU”.
The agreement must now be validated within the two European institutions. (Original version in French by Marion Fontana)