The EU capital markets agenda kicks off with weaker rules, bigger risks, and minimal real economy impact

17 June 2025 - 17:08 h

Press Release

Securitisation returns. In the first concrete move of the EU’s much-anticipated push to deepen capital markets, the Commission is proposing looser capital and due diligence rules for repackaged loans. But there’s a problem. The proposal increases risk without delivering on the EU’s investment goals.

Securitisation is structurally complex, difficult to model and played a key role in the 2008 crisis. That’s why international standards require strong safeguards. The Commission’s proposal weakens these protections, setting a dangerous precedent. Once Basel becomes optional, so does financial stability.

Christian M. Stiefmüller, Senior Research and Advocacy Advisor at Finance Watch

The reforms weaken the safeguards designed to ensure banks can absorb losses when things go wrong. They lower the risk weight floor and the so-called P-factor, and introduce a vague new category of “resilient positions”, a demonstrative departure from the Basel III consensus which further undermines global banking rules and ratchets up systemic risk.

Worse, the entire premise of the intended reform is flawed. Reviving securitisation will not deliver on the stated objectives. The Commission says the changes will “free up capital” and “build the Savings and Investment Union”. Yet banks are not short of capital. They’ve posted record profits, much of which has been returned to shareholders via dividends and buybacks rather than used to expand lending to the real economy.

This proposal undoes protections without unlocking investment. There’s no requirement to channel the freed-up capital towards real economy lending. Instead, it encourages capital arbitrage, not competitiveness of the real economy, enabling large banks to move risk off balance sheet and increase returns, with no real link to the goals of the Savings and Investment Union.

Christian M. Stiefmüller, Senior Research and Advocacy Advisor at Finance Watch

Moreover, the push by a handful of the largest EU banks to promote the US model of refinancing mortgage lending through securitisation, at the expense of a safe and proven European ecosystem built on covered bonds, will affect the way housing is financed in Europe. It marks the return of the transactional ‘originate to distribute model’ of mortgage lending, where banks issue loans only to bundle and sell them on. Discredited after the 2008 crisis, this model stands in contrast to a ‘relationship banking’ approach, where borrowers are acknowledged as individual customers, not just anonymous entries in a securitised ‘pool’ of loans.