In a recent interview with Structured Credit Investor, Revel Partners' CEO, Jonas Bäcklund, shared his perspective on improving the European Significant Risk Transfer (SRT) market. Despite being the dominant synthetic SRT market, Europe sees limited growth due to regulatory constraints. Currently, securitised assets account for less than 1% of total assets held by European banks. In the article, he suggests that if regulations were adjusted, this figure could increase significantly.
Mario Draghi, the former ECB President, recently advocated for a revitalised securitisation market to channel investment into long-term projects, such as infrastructure and the green transition. Bäcklund supports this vision, pointing out that regulatory reform could enable the use of securitisation as a growth engine for the real economy. He calls for a standardisation of structures (termed STS 2.0) and changes to risk-weighting rules, particularly for assets linked to sustainability and infrastructure, to stimulate market growth and align with EU climate goals.
While agreeing with Draghi's proposals, Revel Partners can't help but note that the need for over 400 pages to make the case might actually be a symptom of the broader issue with European competitiveness—sometimes, simplicity is the most effective solution.
In the article, Bäcklund emphasizes that overcoming regulatory fragmentation and gold-plating of regulations across jurisdictions is crucial. He proposes a centralised approval process and a more inclusive homogeneity criterion for STS classification, which would benefit both larger and smaller banks. Reforming risk weights on securitised assets could open new markets, making it commercially viable to securitise high-quality assets like mortgages.
Link to Article (unfortunately behind pay wall): Regulating mood | Capital Relief Trades | Structured Credit Investor
Link to the Report (unfortunately 400 pages): EU competitiveness: Looking ahead - European Commission (europa.eu)
