A two-page letter from the finance ministries of Germany and France to the European Commission on reviving the European securitisation market catches one’s eye. In their response to the European Commission’s Call for Advice (CfA) on securitisation regulation, the European Supervisory Authorities (ESAs) have been very cautious about the need for improvements in the regulatory conditions for securitisation (see TSI kompakt of 12 December 2022). Subsequently, in November 2022, the presidents of the German and French central banks had emphasised in a joint interview that securitisation can make an important contribution to financing the transformation. At the turn of the year, German Finance Minister Christian Lindner made it clear that there was definitely a need for a renewed discussion on reforming the EU securitisation market in the course of the desired Capital Markets Union.
The French-German non-paper now represents the next political statement on the relevance of securitisation in a short period of time. It emphasises the growing need for substantial reforms of securitisation rules in Europe, not least due to the rise in interest rates. Instead of a fit for purpose, the Ministries of Finance speak of a window of opportunity “to address some of the issues affecting the EU securitisation market’s development.”
In their holistic view of European capital markets, the Ministries of Finance arrive at the following assessments in this non-paper to the Commission:
- From the originator’s point of view, transactions are too costly, especially in view of the very conservative capital requirements.
- In the case of banks as investors, the eligibility for the LCR ratio via the capital requirements is seen as too restrictive; in the case of insurers, an insufficiently differentiated risk calibration of individual tranches is seen as an obstacle to their investments in securitisations.
The letter also identifies concrete starting points for a reform of the EU securitisation market:
- Review of the ESMA Disclosure Templates
- Harmonisation and simplification of SRT tests
- Consideration of mezzanine tranches in Solvency II
- Application of the European Green Bond Standard (EuGBS), which is still in the legislative process, to originators of securitisations
Fortunately, the position paper takes a clear stance in favour of improving regulation and contrasts with the very conservative positions of the ESAs. In view of the need for investment in the transformation of European economies and in view of the special importance of bank-based SME financing in Germany, policymakers are calling for reviving the EU securitisation market at the right time.