Source: European Parliament
‘Securitisation’ consists of banks ‘pooling’ granted loans (e.g. mortgages and consumption loans) into a single tradable security, which is sold to other investors under specific conditions. Securitisation allows banks to ‘off-load’ part of their granted loans, thereby augmenting their lending capacities as well as swiftly modifying their portfolio risk exposure. Securitisation markets boomed in the 2000s and were identified as the main cause of the 2007-2008 financial crisis. The post-crisis regulation is now perceived as a major determinant of the significant shrinkage of securitisation markets since then, and an issue for the financial system. The Commission has made a proposal to ‘revive’ the securitisation market with the aim of removing obstacles that hinder the growth and development of the EU securitisation market, but without introducing risks to financial stability, market integrity or investor protection. The co-legislators have indicated (in their pre-legislative work) that they would support a revival of the European securitisation market while taking into account any risks to financial stability.