Securitisation

What the EU is doing and why

When banks and other credit institutions package loans into securities and then sell them to investors, it's called 'securitisation'. It lets banks transfer the risk of some loans to other banks or long-term investors such as insurance companies and asset managers. This allows banks to use the capital that was set aside to cover the risk in those loans to create and sell new loans.

This freed-up space in balance sheets can be used to support many of the challenges that the EU economy is facing, including the green transition, which will require vast amounts of financing from private and public investors alike. If opaque, however, securitisation can amplify vulnerabilities across the financial system, as was the case during the US subprime mortgage crisis beginning in 2007.

This is why, as part of the Capital Markets Union Action Plan, the EU has put in place a sound framework that removes the harmful practices of the past and incentivises safe market practices. The revised securitisation framework came into application in 2019. Its core objective is to establish an EU securitisation market that helps finance the economy without creating risks to financial stability. The framework consists of

• the Securitisation Regulation that introduces common rules on due diligence, risk retention and transparency for all securitisations and creates a category of simple, transparent and standardised (STS) securitisation products and
• an amendment to the Capital Requirements Regulation (CRR) that makes the capital treatment of securitisations for banks more risk-sensitive and introduces a specific preferential treatment for STS securitisations
• the prudential rules concerning insurer’s investments in securitisation set out in the Solvency II directive and the amended Commission Delegated Regulation (EU) 2015/35

In 2021, as part of the Capital Market Recovery Package, the scope of the simple transparent and standardised (STS) label was expanded to on-balance-sheet synthetic securitisations through an amendment of the Securitisation Regulation and regulatory obstacles for securitisation of non-performing exposures were removed through an amendment of the CRR.

In 2022-2023, we are working on a number of policy initiatives

• a framework for green securitisation in the context of the European green bond standard
• regulatory Technical Standards (RTS) on risk retention, performance related triggers, principal adverse impact on sustainability factors, homogeneity and synthetic excess spread
• reviewing the disclosure templates under Article 7 of the Securitisation Regulation

Background

A number of global initiatives fed into the revision of the European securitisation framework

• the BCBS published revised standards on the capital treatment of banks’ exposures to securitisations in December 2014
• the Basel Committee on Banking Supervision (BCBS) and the International Organisation of Securities Commissions (IOSCO) developed a set of criteria to identify simple, transparent and comparable (STC) securitisation instruments. The global criteria were issued on 23 July 2015. The EU STS criteria are broadly aligned with the BCBS criteria

The amendments in 2021 were based on the following inputs from the European Banking Authority and the BCBS

• An opinion on the regulatory treatment of the securitisation of non-performing exposures
• A report on an STS framework for synthetic securitisation
• A technical amendment to the capital treatment of securitisations of non-performing loans published by the BCBS

Relevant legislation

Related links

EBA Sub-Group on Securitisation and Covered Bonds

ESMA securitisation