Mario Draghi Urges Action from the European Parliament on Securitisation Proposals

In a Strasbourg speech on 21 November 2016, Mario Draghi, President of the ECB, urged the European Parliament to end regulatory uncertainty and bring its deliberations on proposals to introduce a ‘Simple, Transparent, and Standardised’ (STS) securitsation framework to a conclusion.  He said:
 
“In particular, the negotiations concerning the securitisation regulation need to be finalised soon. Securitisation can play a very important role in increasing bank funding to the economy but regulatory uncertainty is detrimental to European securitisation markets. We consider that the Commission has put forward a strong package that balances a revival of the European securitisation markets with the preservation of a prudent regulatory framework.”
 
 
The European Commission put forward proposals to promote 'simple, transparent and standardised' (STS) securitisation in September 2015.  The main objectives were: 

• To revive markets on a more sustainable basis so that STS securitisation can act as an effective funding channel to the economy;
• To allow for efficient and effective risk transfers to a broad set of institutional investors;
• To allow securitisation to function as an effective funding mechanism for some non-banks (such as insurance companies) as well as banks;
• To protect investors and to manage systemic risk.

If introduced, regulatory capital requirements for exposures to STS securitisations would be reduced, thereby removing one of the primary barriers to new issuance.  The European Council, representing the 28 member states, reacted quickly to the EU Commission's proposal and approved a revised STS text on 8 December 2015. 
 
However, the European Parliament has taken a full year to review these urgently needed changes and will not vote on the issue until mid-December 2016 at the earliest.