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Securitisation
Securitisation is the process by which banks and credit institutions package loans into securities and sell them to investors. This transfers the risk from the original lenders to investors, freeing up capital for new loans.
This process supports the EU economy and the green transition by mobilizing private and public financing. However, if not properly regulated, securitisation can amplify financial system vulnerabilities, as seen during the US subprime mortgage crisis in 2007.
This process supports the EU economy and the green transition by mobilizing private and public financing. However, if not properly regulated, securitisation can amplify financial system vulnerabilities, as seen during the US subprime mortgage crisis in 2007.
EU Regulatory Framework
To prevent past harmful practices and encourage safe market practices, the EU has established a robust securitisation framework as part of the Capital Markets Union Action Plan. This framework came into effect in 2019 and aims to finance the economy without compromising financial stability. Key components include:
- Securitisation Regulation (2017/2402/EU): Establishes common rules on due diligence, risk retention, and transparency for all securitisations. It also introduces the Simple, Transparent, and Standardised (STS) securitisation products category.
- Amended Capital Requirements Regulation (Amended CRR) (2017/2401/EU): Adjusts the capital treatment of securitisations for banks to be more risk-sensitive and offers preferential treatment for STS securitisations.
- Prudential Rules under Solvency II Directive: These rules govern insurers' investments in securitisations, ensuring appropriate risk management.
Recent Developments and Initiatives
- 2021 Amendments: Expanded the STS label to include on-balance-sheet synthetic securitisations and removed regulatory obstacles for securitising non-performing exposures.
- 2022-2023 Policy Initiatives: Development of a framework for green securitisation in line with the European green bond standard, and the establishment of Regulatory Technical Standards (RTS) on various aspects of securitisation such as risk retention and sustainability impacts.
Policy Making Timeline
- 12 December 2022: Report on the review of the securitisation prudential framework.
- 11 October 2022: Report on the review of the Securitisation Regulation.
- 23 July 2021: Targeted consultation on the functioning of the EU securitisation framework.
Background and Global Alignment
The EU's securitisation framework aligns with global standards, such as those developed by the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO).
These standards aim to identify simple, transparent, and comparable (STC) securitisation instruments.
These standards aim to identify simple, transparent, and comparable (STC) securitisation instruments.
