Finance Watch responds to the European Commission’s consultation on the EU securitisation framework, challenging the notion that securitisation can meaningfully address the funding needs of SMEs and raising concerns about its impact on financial stability. The response identifies significant structural, regulatory and systemic challenges that limit the actual benefits of an EU securitisation revival.
The European Commission has recently positioned securitisation as a key tool in its broader push to deepen capital markets and address Europe’s investment needs. reviving the securitisation market has been a focus of the Capital Markets Union action plan, with support from prominent figures like Christian Noyer and Mario Draghi. However, the expectations of European policymakers regarding the role of securitisation in addressing EU funding challenges in the coming years are overly optimistic.
In response to the Commission’s consultation, Finance Watch took a closer look at the limitations of securitisation: its shortcomings as a funding mechanism for the real economy, the risks of deepening Europe’s reliance on debt-based financing and the systemic vulnerabilities it creates within the financial system. The revival of securitisation should not remove focus from more effective solutions, such as fostering equity markets and addressing deeper inefficiencies in Europe’s capital markets.
- Securitisation is unlikely to significantly help small businesses access funding due to practical barriers. Structural constraints such as heterogeneity of loans, lack of collateral, and high operational costs restrict the appeal of SME loan securitisation, for both banks and businesses.
- Promoting securitisation could deepen corporate reliance on debt rather than addressing the EU’s chronic equity funding shortage, undermining the goals of the Capital Markets Union (CMU).
- Proposals for pan-European securitisation platforms with public guarantees transfer risks to taxpayers without addressing systemic vulnerabilities or improving market liquidity.
- Finance Watch underscores the need for stronger transparency measures, clearer jurisdictional rules and harmonised supervision to prevent regulatory arbitrage and maintain financial stability.
- Features like tranching increase systemic vulnerabilities, including tail risks, procyclicality and portfolio correlation, which may amplify financial instability in downturns.
Securitisation alone cannot resolve the EU’s funding challenges. Instead, the focus should be on enhancing equity funding programs as well as integrating primary debt and equity capital markets.
