The key initiative within the CMU project is to revive and assure “high quality” securitisation. Securitisation is the practice of pooling together and repackaging a number of loans granted by a bank and issuing tradable debt securities (such as bonds) sold to investors.
As part of the CMU Action Plan published on 30 September 2015, the Commission adopted a first set of initiatives aiming to revive high-quality securitisation: a proposal on STS (simple, transparent, and standardised) securitisation and the accompanying proposal to amend the Capital Requirements Regulation (CRR). The capital reduction for STS for insurers will be implemented through the Solvency II level 2 process.
In December 2014, Finance Watch published a position paper on the European Commission’s Long-Term Financing initiative, “A missed opportunity to revive “boring” finance?”, which includes a detailed assessment of the ongoing push to revive securitisation.
The paper provided the basis for a discussion panel on collateral use in our February 2015 conference “The long term financing agenda – the way to sustainable growth?”On 18 February 2015, following the European Commission’s Green Paper on the subject, Building a Capital Markets Union, Finance Watch published a press release, expressing some concerns on the project. In March 2015 Finance Watch explained the Capital Markets Union through the publication Capital Markets Union in 5 questions, while in May 2015 FW replied to the Green Paper and organised a Webinar dedicated to CMU. We also organised another webinar on securitisation (27 July 2015), available online. Following the publication of the CMU Action Plan, Finance Watch expressed its concerns in a press release and in a joint statement signed by 29 civil society organisations. On 14 December 2015, we also published Capital Markets Union and STS Securitisation Q&As.
Finance Watch is concerned about the consequences of a revival of securitisation. This technique was at the heart of the financial crisis, as it enabled banks to transform bad quality subprime loans into AAA rated securities. As the securitisation process (repackaging, designing the new securities to be issued and providing guarantees) is done by investment banks, reviving securitisation will implicitly promote investment banking activities relative to traditional relationship banking in Europe.
The current promotion of non-bank lending via Capital Markets Union will lead to a more collateral-intensive financial system, since the revival of securitisation will create more high quality liquid securities that can be used as collateral. This makes it all the more urgent to address the negative externalities and systemic concerns related to this practice.
- Statement at European Parliament’s ECON Committee Public Hearing on Securitisation (13 June 2016)
- Capital Markets Union and STS Securitisation Q&As (14 December 2015)
- Webinar on securitisation (27 July 2015)
- Capital Markets Union is not a cure-all for SME jobs and growth, may generate new risks (press release, 2 June 2015)
- Response to Commission Green Paper on Capital Markets Union (13 May 2015)
- Response to Commission consultation on framework for simple, transparent and standardised securitisation (13 May 2015)
- Webinar on CMU (11 May 2015)
- Capital Markets Union in 5 questions (publication, 23 March 2015)
- Finance Watch sceptical about key parts of Capital Markets Union plan for sustainable growth (press release, 18 February 2015)
- Conference “The long term financing agenda – the way to sustainable growth?” (4 February 2015)
- “A missed opportunity to revive “boring” finance?” (Position paper, 15 December 2014)
- 18 April 2017 Annual Report 2016
- 17 March 2017 Response to the EC’s public consultation on the CMU mid-term review 2017
- 7 November 2016 Public hearing on the EU’s Macro-prudential Policy