In a next step towards the Capital Markets Union (CMU), the Eurogroup has tasked the Financial Services Committee (FSC) with identifying practical ways to strengthen Europe’s capital markets infrastructure. With support from the Council Secretariat, the European Commission, the European Central Bank (ECB), and European Supervisory Authorities, the FSC has recently produced a report that outlines national practices and provides concrete recommendations in key areas, including sustainable finance, securitisation, and the harmonisation of financial reporting standards. This report represents a step forward in CMU discussions, bringing renewed focus to critical areas while offering some tangible actions for progress.
Among these areas, securitisation stands out, though we believe there is room for greater detail and emphasis. It is encouraging to see securitisation acknowledged as a tool for CMU, but additional clarity and expanded actions could further unlock its potential. Developing securitisation within the CMU framework could bring substantial benefits to Europe’s capital markets by boosting liquidity and supporting a diversified investor base.
Key focus areas of the report
The FSC's report explores a broad range of issues aimed at enhancing the appeal and functionality of Europe’s capital markets. Key topics addressed include:
- Debt-equity bias: The FSC examined strategies to counterbalance the debt-equity bias in tax structures, urging member states to mitigate this issue and promote equity financing.
- Incentivising equity investments: Recognising the importance of stimulating equity financing, the report suggests specific incentives to foster a more robust investment environment for both institutional and retail investors.
- Retail participation in capital markets: With lower retail investor engagement in Europe compared to other major markets, the report recommends measures to encourage greater participation, enhancing resilience and diversification within Europe’s capital markets.
- Securitisation as a tool for CMU: The report identifies securitisation as a key mechanism to improve capital flow across the EU.
Proposed steps for securitisation
The FSC’s recommendations outline several actions to support and expand securitisation within the EU:
- Harmonisation of securitisation standards: Simplifying and aligning securitisation standards across member states to reduce regulatory complexity and foster cross-border investment.
- Enhanced transparency: Implementing measures to make securitised products more accessible and comprehensible, enhancing investor confidence in this asset class.
- Incentivising sustainable securitisation: Aligning securitisation frameworks with sustainable finance goals to contribute more directly to Europe’s green transition.
How do we see the role of securitisation in Capital Markets Union
Securitisation is a vital mechanism for Europe’s capital markets, with functions that extend beyond simple asset redistribution. We believe that the report do not fully capture that securitisation can play a critical role in:
- Increasing capital velocity for banks: Securitisation allows banks to optimise balance sheets, enabling them to lend more to SMEs and other key sectors that drive economic growth. Comparisons are made to covered bonds, although it is not mentioned that covered bonds to not release capital for banks, it is simply a funding instrument. Securitisation on the other hand transfers risk to non-banks, freeing up capacity for the bank to grow their loan books without raising more capital.
- Diversifying capital sources: By attracting non-bank capital, securitisation fosters a more resilient and diversified financial ecosystem that is less reliant on traditional banking.
- Offering unique investment opportunities: Securitisation provides investors access to asset classes with unique risk-return profiles, often with lower correlation to public equity markets, enhancing portfolio diversification.
Our perspective – Additional actions are needed to maximise the impact of securitisation
While the FSC's proposals are a step in the right direction, additional steps could enhance securitisation’s role in supporting CMU objectives. Specifically, we believe that:
- Standardising regulatory approval for banks: A harmonised regulatory approval process across the EU would simplify securitisation issuance for banks, reduce regulatory uncertainty for banks and investors alike, and remove administrative barriers to enable faster execution
- Incentivising banks to transfer risk and increase capital velocity: Policy adjustments that align risk-weight floors with reference portfolio risk weights could enhance capital efficiency. This would free up bank capital to support new lending, particularly important for financing Europe’s transition goals.
- Developing “STS 2.0”: An enhanced version of the Simple, Transparent, and Standardised (STS) framework could provide clearer guidelines, bolstering investor confidence and expanding market access. This would open up securitisation as a tool for not only large banks but also smaller actors that lend to SMEs and consumers, who are instrumental in financing the green and digital transformation in the region.
- Harmonising regulatory treatment to attract insurance capital: Consistent regulatory treatment across jurisdictions would facilitate insurance companies’ participation in securitised assets, encouraging more non-bank capital flows into the market.
- Opening up securitisation as an asset class to retail investors: Expanding access to securitisation for retail investors would enable them to invest in asset classes that offer attractive, stable returns with lower correlation to public equity markets. This would not only broaden the investor base but also increase market liquidity and deepen Europe’s capital markets.
Conclusion
While the FSC's report signifies meaningful progress in advancing CMU, further actions in securitisation—particularly in regulatory harmonisation, standardisation, and capital incentives—are essential to build a resilient and liquid European capital market. We look forward to supporting ongoing developments and initiatives that strengthen Europe’s financial infrastructure.
About the Eurogroup and the FSC
The Eurogroup is an informal body composed of finance ministers from Eurozone countries, focused on coordinating economic policy, ensuring financial stability, and addressing economic issues impacting the euro area. The Financial Services Committee (FSC) is an EU advisory body that supports the Economic and Financial Affairs Council (ECOFIN) by assessing financial market policies and promoting stability, integration, and regulatory initiatives across the EU’s financial services.
The report can be found here.
