Urgent Securitisation Legislation Mired in the European Parliament

After years of discussion and debate, 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.  Assuming that European securitisation then returns to average pre-crisis levels, the EU Commission estimates that this initiative would inject €100 billion of additional funding into the European economy each year.

On 10 March, the ECB responded to worryingly low European growth and the growing prospect of several months of negative European inflation by cutting its main refinancing rate to zero and expanding its quantitative easing program.  These are  new dramatic,  unprecedented steps in the battle to urgently revive growth in Europe.

In sharp contrast, the European Parliament is not in a hurry to progress the STS legislation.   Paul Tang, the  Dutch member of the European Parliament’s socialist group, who is heading the review of the STS proposals, has set out a timetable that will see the Parliament voting on the STS proposal  at least nine months from now, in December 2016.   In view of the current state of the European economy and the paucity of funding available to SMEs, many will regard this long delay as  irresponsible and unacceptable. 

The institutions of the European Union need to act together effectively,  decisively and with agility in times of crisis. If not, the likelihood that Europe will break apart will surely increase further.