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The European Union has reached a provisional agreement on reforms to its securitisation framework, potentially allowing banks to release more capital for lending to businesses, households and infrastructure projects.
The agreement, announced on Wednesday, 21st October, follows negotiations between the Council and European Parliament over changes to prudential requirements and the regulation governing securitised financial products.
The reform package agreed by EU negotiators would reduce capital requirements for lower-risk transactions, introduce a new category of resilient securitisations and simplify administrative procedures for financial institutions and investors.
It forms part of the EU’s Savings and Investments Union initiative, which aims to channel more private capital into the European economy.
Banks offered greater flexibility
Securitisation allows banks and other lenders to combine financial assets, including mortgages, consumer credit and corporate loans, into securities that can be purchased by investors.
By transferring some of the financial risks associated with these assets, banks can reduce the amount of regulatory capital they are required to maintain against particular exposures.
This can increase their capacity to extend new loans, although it does not guarantee that additional lending will follow.
The provisional agreement would recalibrate capital requirements according to the risk of individual transactions.
Lower-risk securitisations would receive more favourable treatment, while higher capital requirements would continue to apply to riskier structures.
A new category of resilient securitisations would be introduced alongside the existing framework for simple, transparent and standardised transactions, commonly known as STS securitisations.
The agreement would also strengthen supervision of independent organisations responsible for verifying compliance with the STS criteria.
The Council said that third-party verifiers would become subject to EU-level supervision, with the aim of improving consistency across national markets.
European financial markets remain fragmented
The reforms address a long-standing concern that European banks face higher administrative and capital costs for securitisation than competitors operating under other regulatory systems.
Following the financial crisis of 2008, European authorities introduced tighter rules governing structured financial products, including restrictions intended to improve transparency and ensure that lenders retained appropriate exposure to credit risks.
The resulting framework, which began applying in 2019, strengthened investor protection but also increased compliance costs.
The European Commission proposed the latest review in June 2025, arguing that the existing arrangements had constrained the development of securitisation as a financing tool.
According to the Association for Financial Markets in Europe, approximately €252.3 billion in securitised products was issued across Europe in 2025, with €156.3 billion placed with investors.
Those figures cover the wider European market, including activity outside the EU.
Brussels regards the development of deeper financial markets as necessary to finance infrastructure, technological investment and industrial development.
As EU Today previously reported, the EU’s largest economies have also been examining proposals to strengthen supervision and reduce fragmentation across European capital markets.
Will banks lend more to businesses?
The potential benefits of securitisation are not automatic.
Research published by economists on the European Central Bank’s website in September 2026 found that banks using synthetic securitisation increased corporate lending only modestly, while also distributing more capital to shareholders.
Synthetic securitisation allows banks to transfer credit risk to investors without necessarily removing the underlying loans from their balance sheets.
The researchers found that a one per cent increase in synthetic securitisation issuance was associated with an increase of approximately 0.02 per cent in corporate loan growth.
Their findings also indicated that banks participating in the synthetic securitisation market made greater use of capital released through these transactions to increase dividend payments.
The study suggests that easing capital requirements alone may not generate the substantial expansion in business lending envisaged by European policymakers.
Credit demand, economic conditions and banks’ commercial decisions will also influence whether the reforms produce measurable increases in investment financing.
Broader investment rules to change
The provisional agreement includes additional measures intended to encourage participation by institutional investors.
Investment limits for certain regulated funds, known as UCITS, would be increased, while targeted changes would allow insurers and reinsurers greater participation in specified synthetic securitisation transactions.
The package also seeks to facilitate securitisation arrangements used to finance infrastructure projects before they become operational.
Together, these provisions could widen the investor base and make financing structures available to a broader range of businesses and projects.
However, transferring credit exposure between banks and investors does not eliminate the underlying risk.
If borrowers default or the financial institutions providing protection encounter difficulties, losses may still emerge within the wider financial system.
European regulators will therefore have to assess whether the new classification and supervisory arrangements adequately reflect the risks of different securitisation products.
The political agreement now requires legal finalisation and formal approval by the Council and European Parliament.
The new arrangements would then form part of the EU’s wider programme to strengthen financial markets and reduce barriers to investment across the single market.
Asian markets were sharply lower, with South Korea's Kospi declining 3.12 per cent, Hong Kong's Hang Seng benchmark falling 3%, Japan's Nikkei 225 index losing 1.94% and Shanghai's SSE Composite Index slipping nearly 1%
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