Savings and investment union: Council agrees position on revitalising the EU’s securitisation market
The Council today agreed on its position on reviving and simplifying the EU’s securitisation market, ahead of negotiations with the European Parliament.
This review of the EU framework governing the prudential and regulatory rules around securitisation aims to help this market live up to its potential in contributing to the Union’s competitiveness, a core EU priority. It will also help channel investment flows into a broader range of real‑economy activities, including in support of SMEs and infrastructure projects.
The securitisation package is a first key deliverable of the EU’s savings and investment union (SIU) initiative.
“I am pleased that we have delivered on our commitments and agreed on the first new proposal under the Savings and Investment Union. This clearly shows our will to boost European capital markets and mobilise private investments, which then has the possibility to grow and contribute to the European economy. The Danish compromise proposal ensures balance between boosting economic growth and safeguarding financial stability” (Stephanie Lose, Danish Minister for Economic Affairs).
“Europe needs more investments. Draghi has said that very clearly. And speed is essential. That is why the Danish presidency has given particular priority to facilitating a Council agreement on improved rules for securitisations, as the use of securitisations can allow banks to lend more money to companies and citizens in Europe. Because we must strengthen the banks’ opportunities to lend to the innovation and ideas of the future. And in this way strengthen European competitiveness, boost European growth and create more jobs in Europe” (Morten Bødskov, Danish Minister for Industry, Business and Financial Affairs).
Securitisation describes the pooling of illiquid financial assets, such as corporate loans, mortgage loans, or consumer credit, and transforming them into tradable assets – bonds – for institutional investors.
The mechanism helps banks – the originators of loans – to transfer risk associated with these assets. This frees up capital which can then be re-deployed for new lending. Non‑bank originators, such as corporations using commercial‑paper conduits or sponsors of infrastructure projects, also use securitisation as a funding or liquidity management tool.
The revision takes the form of targeted amendments to the EU’s capital requirements regulation and the securitisation regulation.
Council’s position
Overall, the Council takes a balanced approach to expanding market activity on one hand, while preserving financial stability on the other.
Among other features of its position, the Council re-calibrates capital requirements for investments by banks in different types of securitisations in a risk sensitive manner. The Council mandate ensures that low-risk securitisations benefit from materially lower capital requirements than today, while maintaining capital requirements on riskier securitisations at current levels.
The Council maintains the Commission’s proposed safer “resilient” securitisation category. When combined with the well-established simple, transparent and standardised (STS) label for securitisation packages, this category will deliver deeper capital savings with added incentives for safe market practices.
The Council also significantly reduces administrative burdens compared to the current regulation and simplifies life for investors in their efforts to be STS compliant. The position allows for assessments to be carried out by third-party verifiers, lowering time sensitive burdens and duplication of tasks while making the overall framework more workable and appealing to market participants. Similarly, the Council removes the proposed administrative sanctions for institutional investors, considering them duplicative.
In a clear demand side measure, the position raises the investment limit for undertakings for collective investment in transferable securities (UCITS), allowing them to acquire up to 50% of securities in a single public securitisation, up from the current 10% cap. This will stimulate market liquidity and investor participation in the securitisation market.
Introducing added prudence, the Council tightens, as compared to the Commission’s proposal, the homogeneity requirements for SME-backed pools seeking the STS label while expressly allowing those pools to include SME loans from multiple member states, thereby advancing the key market-integration goals of the SIU.
Compared to those proposed by the Commission, the Council also introduces additional safeguards tied to STS compliance when insurers, or indirectly reinsurers, provide unfunded credit protection in synthetic securitisations. It also allows securitisations of project financing in the pre-operational phase to qualify for the STS label.
Finally, the Council mandate allows third country issuers to use alternative disclosure formats instead of the current templates, provided they make available to EU investors the same substantial information that EU‑based issuers must provide under the securitisation regulation. This approach preserves a level playing field, reduces operational frictions and encourages both inward and outward capital flows between the EU and third countries.
Next steps
With its agreed position, the Council can now enter into negotiations with the European Parliament to agree on final legal texts.
Background
The savings and investments union is an initiative to improve how the EU’s financial system channels savings into productive investments. Its aim is to provide a wider range of efficient investment and financing opportunities for citizens and businesses.
The European Council conclusions of 18 April 2024 called for a relaunch of the European securitisation market, including through regulatory and prudential changes. The European Council conclusions of June 2024 again called on the Council and the Commission to accelerate work on all identified measures to support the EU’s capital markets.
Revitalising the securitisation market was also recommended in the reports from Enrico Letta and Mario Draghi as a means of strengthening the lending capacity of European banks and thereby helping to increase the EU’s competitiveness.
