In an opinion published on Wednesday 12 November, the European Central Bank (ECB) welcomes the European Commission’s proposals to reform the regulatory framework for securitisation in the European Union. The ECB believes that the measures constitute “a step in the right direction” to strengthen the functioning of the European securitisation market, which is considered essential to the development of the capital markets union and the financing of the real economy.
However, it also warns that regulatory reform alone will not revive this flagging market and calls for a robust prudential framework to be maintained.
In particular, it flags certain risks associated with the growth of ‘synthetic securitisations’, whose increasing use could introduce new vulnerabilities for financial stability if their development is not carefully supervised.
“Large-scale use of synthetic securitisations may create three main vulnerabilities”, cautions the ECB, mentioning the risk that these operations will push banks to take on too much debt, the need to renew them very often if they are to continue to protect banks effectively, and the danger that the investors who are supposed to absorb the losses will not be able to do so in the event of a crisis, which would weaken the whole mechanism.
The ECB also stresses the need to promote simple, transparent and standardised transactions in order to support sustainable market growth.
Link to the ECB opinion: https://aeur.eu/f/jgc (Original version in French by Bernard Denuit)