Euro finance ministers call for relaunch of bank securitisation

Euro area ministers on Monday (11 March) agreed a wishlist of financial reforms – led by a controversial relaunch of securitisation, the banking-sector instruments that caused the last financial crisis.

Compared to other major economies like the US, the EU economy is largely dependent on bank financing – and policymakers are keen to find alternatives such as fundraising via stock issuance.

Of the 13 measures proposed by finance ministers, number one was to help banks to offload risks via the complex structured products – but that isn’t without its controversy.

The proposals seek to “deregulate finance a bit more – notably by bringing back the bomb that’s at the origin of the 2007-08 crisis,” MEP Philippe Lamberts (Belgium/Greens) told lawmakers meeting for a plenary in Strasbourg today (12 March).

Alongside proposals to tweak income tax rules to favour investment, the plans assumed that “making the rich richer will profit everyone”, Lamberts said.

Securitisation involves banks packaging loans and selling them on to other investors. A radical misjudgement of their risk nearly brought the global economy to its knees more than 15 years ago.

But, in a statement released Monday evening, ministers from the euro area said a relaunch in line with international standards will allow banks to transfer risks to those best placed to bear them.

That view is shared by policymakers at the European Central Bank, whose governing council on 7 March called for a review of the capital rules banks must follow to issue the structured loans. ECB President Christine Lagarde has previously said stronger capital markets will spur economic growth and green investment.

But lobby groups such as Finance Watch have previously argued that securitisation won’t help banks lend more, while bringing significant extra risks for the financial system.

Lagarde has also pointed to the need for EU-level supervision, so stock issuers or market traders see rules applied consistently across the bloc. But here ministers were more circumspect.

EU member states have rejected previous plans to strengthen the European Securities and Markets Authority, fearing that their own national powers would be usurped.

For Hans van Meerten, the chair in European Pensions Law at Utrecht University, the ministers’ call was “old wine in new bottles”, as pleas for stronger EU capital markets date back to at least 2015.

A new pan-European Pensions Product finalised in 2019 has seen just a single provider with a few thousand customers – which van Meerten attributed to a “lobby circus” that made the product unworkable. 

Meanwhile a recent legislative deal to make it easier for small businesses to list on stock exchanges was described as “disappointing” and “inadequate” by its own lead lawmaker, Alfred Sant (Malta/Socialists and Democrats).