A senior European Central Bank (ECB) official has voiced concerns that the European Commission’s plans to ease securitisation rules for banks may be too lenient, particularly concerning complex transactions. Pedro Machado, a member of the ECB’s Supervisory Board, cautioned that the proposed changes could elevate financial instability risks. Securitisations involve banks packaging loans to businesses or consumers and selling them to investors as securities. These were central to the 2007-08 global financial crisis, from which Europe is still recovering.
The European Commission proposed streamlining securitisation rules in June to free up capital for lending and enhance Europe’s financial competitiveness with the United States. However, the ECB, which oversees the Eurozone’s largest banks, believes certain proposed amendments may heighten risks. Machado highlighted inherent risks to financial stability, such as agency and model risks, which are harder to manage in more complex securitisation structures.
Machado also stated that there is no direct relationship between securitisation and increased lending. Although Europe’s securitisation market is smaller than that of the U.S., he noted the rapid growth of synthetic securitisations in the EU. These involve selling guarantees on loan portfolios in return for a fee. Because the securitised loans stay on the bank’s books, these transactions do not provide new funding.
The Commission’s proposed changes would mean investors would no longer need to independently verify that the issuing bank has met all necessary requirements. Due diligence would be more aligned with the level of risk, paperwork would be reduced, fewer details would need to be disclosed, and there would be a lighter transparency regime for private deals. Machado cautioned against encouraging “complex securitisations and opaque structures” and argued that new rules should promote “simpler, more standardised and more resilient transactions”.
