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European investors and financial institutions are increasingly calling for a major overhaul of the continent’s securitisation market, which has struggled to gain momentum in recent years. Fund managers and insurers argue that long-overdue regulatory reforms could unleash hundreds of billions of euros in financing, providing much-needed liquidity to businesses while revitalizing a crucial segment of capital markets. Unlike in the United States, where securitisation has played a vital role in channelling capital to businesses and consumers, the European market remains in a state of stagnation. Stricter post-financial crisis regulations, combined with complex risk-weighting requirements imposed by the European Central Bank (ECB) and other regulators, have made it difficult for financial institutions to leverage securitised assets effectively.
The lack of a robust securitisation framework has had a pronounced impact on the European economy, particularly small and medium-sized enterprises (SMEs) that rely heavily on bank lending. With banks facing stringent capital requirements, their ability to extend credit has been curbed, leading to sluggish economic growth and restrained business investment. A reformed securitisation market, investors argue, would enable financial institutions to package and offload loans to investors, freeing up balance sheets for new lending. Compared to the U.S., where securitised assets exceed $1 trillion annually, Europe’s market remains relatively modest in scope, suppressing the potential efficiency gains that securitised financing traditionally offers.
Some of Europe’s largest asset managers and insurers have called on regulators to simplify the securitisation process and lower excessive capital charges that deter banks from participating in the market. A more efficient securitisation system could also help financial markets reduce reliance on traditional bank lending, diversifying available sources of capital. With European economies facing persistent inflationary pressures and tightened monetary policies, boosting alternative financing sources could provide a much-needed cushion against macroeconomic uncertainty. Policymakers at the European Commission and ECB have acknowledged these concerns but have so far failed to implement sweeping changes, citing caution over financial stability risks.
A revitalised securitisation market could also have significant implications for investors. Pension funds, insurers, and asset managers stand to benefit from expanded access to high-quality securitised assets that can generate stable, long-term returns. Additionally, a well-functioning securitisation system could enhance liquidity in bond markets and improve overall market depth. Investors remain hopeful that policymakers will address the inefficiencies in the current framework, as a failure to act could lead to continued stagnation in capital markets and impede Europe’s broader economic growth prospects.
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