EU Outlines Strategy to Develop Securitised Debt Market

The European Union (EU) is to decide next year if legal changes are needed to develop the market for securitised debt, a sector seen as key to injecting funds into the economy and encouraging growth, according to an EU document.

News agency Reuters said that it has seen the document, entitled
‘Roadmap for Securitisation’
, which has been drawn up for the region’s finance ministers.

Its central message is that the economic and financial crisis since 2007-09 has considerably reduced funding to the real economy. The European Central Bank (ECB) is also considering purchases of securitised debt, such as asset-backed securities, to help boost the eurozone’s growth.

Europe’s market for securitisation, which converts pools of loans into interest-bearing bonds to help raise further funds, has dwindled since the crisis, says Reuters. The market was tarnished by the so-called sub-prime crisis, when securitised debt based on poor-quality US home loans became untradable in 2007.

The document, which EU finance ministers will discuss at a meeting in Milan next month, lists 19 initiatives underway in Europe and globally to revive securitisation. It suggests that the European Commission (EC) is the body best positioned to coordinate work on these initiatives.

The document also recommends that the EC should liaise with the European Central Bank (ECB) and the bloc’s markets, insurance and banking watchdogs, in reviewing progress before the end of 2015.

“The review should help identify persisting shortcomings and should help inform any further action where needed, including the merits of an EU harmonised framework,” the authors suggest

The ECB and the Bank of England (BoE) have both called for steps to boost ‘high quality’ securitisation, but admitted that the high capital charges on banks who issue securitised debt, and on insurers who buy it, have impeded its development.

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