Read the full paper here.
European policymakers have argued that Europe needs “massive private investments” (see
ECB (2024a)) to advance the climate agenda and generate higher productivity and
competitiveness. While equity markets can provide EU corporates with some risk capacity to
invest more, it will be for debt markets to finance the bulk of the needed investment.
European banks, as key intermediators of surplus funds from European and international savers, could alleviate this pressure if they were able to create more lending headroom by transferring risks through securitisation. By doing this, they would generate ‘capital velocity’, by which we mean that securitisation permits a bank to deploy its risk capacity more than once. Covered Bonds (CBs) are no substitute for securitisation in this regard because the credit risk of the loan pool covered by a CB remains on the issuing bank’s balance sheet and, hence, no additional capacity to make new loans is generated. Boosting securitisation would require some relatively small, though judiciously chosen, adjustments, aimed at aligning regulatory rules with actual risk.
In this regard, we (i) propose a key change in regulations that would bring capital requirements
for senior securitisation tranches in line with risk, namely the introduction of a risk-sensitive
risk weight floor, (ii) suggest changes in governance arrangements to ensure an effective
implementation of the regulatory framework that could reduce unintended and unforeseen
consequences of new rules and (iii) put forward new approaches, including streamlining and
unifying some aspects of securitisation supervision under the coordination of one of the ESAs.
This paper has been co-authored by Georges Duponcheele (GLISE), Marc Fayémi (EBRD), Fernando González Miranda (ECB), William Perraudin (Risk Control), Alessandro Tappi (EIF).
